Have you made a home “to do” list but aren’t sure how to finance your wish list? Maybe holiday spending, medical expenses or necessary home repairs have driven up your credit card balances. No matter what your financial needs are, you may have more opportunities to manage them than you think. In fact, your home’s equity could be just what you need, and a home equity loan could help you tap into it.
What is a home equity loan* you ask? A home equity loan is a financing option that lets you borrow against the equity of your home. Let’s dive into the details.
Home equity loan vs. mortgage
While a home equity loan and a mortgage both offer large loan amounts, they serve different purposes. Using a traditional mortgage is one of the most common ways homebuyers finance their home purchase. A free mortgage calculator can help you get an idea of what your monthly mortgage payment may look.
A home equity loan, a.k.a. a second mortgage, allows you to use the home you’ve already purchased as collateral to access a portion of your home’s equity without having to sell it — or compromising your current interest rate. Just like a traditional mortgage, you would repay the loan in monthly installments.
How home equity loans work
Over time, you earn equity by paying down your mortgage, you also earn equity when your home values rises. In other words, when your home is worth more than what you owe on your mortgage you have earned equity. And you may have built up more home equity than you may think.
Home equity loans allow you to borrow a portion of that equity using your home as collateral in a second loan. PrimeLending offers fixed-rate home equity loans so that your interest will remain the same throughout the life of that loan. With a home equity loan* from PrimeLending, you can turn your home’s equity into cash to use any way you choose, common uses include:
- Financing home renovations
- Paying for educational expenses
- Consolidating high-interest debt
- Covering unexpected expenses
- Embarking on your dream vacation
Are home equity loans tax deductible
When it comes to discussing things that are or aren’t tax deductible, it’s always best to connect with a tax professional to chat about your specific situation. That said, The Tax Cuts and Jobs Act passed in 2017 states that qualifying homeowners may be able to deduct home equity interest through the 2025 fiscal year which the IRS states depends on when you secured the loan and for what purpose.
Does a home equity loan require an appraisal
Because the amount a lender will let you borrow depends on the value of your home, an appraisal is typically required. This will allow your lender to more accurately determine your equity amount based on what you still owe on your initial home loan.
Can I pay off a home equity loan early?
There are a number of reasons a homeowner may seek to pay their home equity loan off early. As with a traditional mortgage, you have the option to pay off your home equity loan early should you choose to do so. Before you do, be sure to check the terms of your loan agreement.
If you are curious about home equity loans, connect with your local PrimeLending loan expert to learn more.
*All credit decisions for brokered products will be made by a third party. Restrictions and limitations apply.
