Spending or Saving your Home Equity

by : Gina Labarbera

In Part 1 ways to accumulate home equity were discussed, both incidental and deliberate; and in Part 2 how to access it is investigated.

Basically home equity is the difference between what is owed on your home and the market value of it. Once you have established that you have accrued some home equity, you need to get the banker who holds your loan to agree with you that this is the case!

In order to convince the lender of this, you should take along your house tax bill and an estimate from a realtor, or proof that your house value has increased by showing evidence of the price of other similar houses in your area.

It is always advisable to go to the original mortgage lender on the property to start with. They will have to know anyway, as the loan will be lodged against the deeds that they are holding.

If your original banker declines, or if you think that you can do better than their offer, then you can shop around. Institutions that might be interested in offering you an equity loan include credit unions, private lenders, banks and of course, mortgage brokers.

It is usual to have a variable rate on an equity loan, and this will fluctuate with the bank rate. Most equity loans demand a higher rate of interest than your first loan will be. The interest on this loan will be tax deductible.

Equity income is usually offered in a choice of two ways. One of these ways is similar to a line of credit; that is you pay interest only on the money that you are using. You can withdraw and repay money as you wish.

The other way to access equity cash is to request a conventional type of mortgage. In the same way that your original loan worked, you are given the proceeds in a single lump sum and you pay interest on the entire sum right from the time you receive the cash.

It is always easier to get an equity loan if the money is to be used for improvements to the home i.e. a new kitchen or roof. This is because in a way, the bank is lending you money to improve their own asset!