Home Equity

Your home's equity is defined as the difference between a home's value and the mortgage remaining on the home. So, if your home has an appraised value of $300,000, and you have an outstanding mortgage balance of $200,000, then your home has $100,000 worth of equity. (Most lenders will not offer 100% of your home's equity, rather between 80% - 90% or $80,000 - $90,000)

Home equity is important because you can take a loan (Home equity loan) based on your home's equity and use the money to make home improvements / additions, buy a car, make an investment, etc. Basically you can do anything you wish with the money your free up through your home's equity. To a certain extent, equity loans are also deductible from Federal Income Tax.

A home equity loan is without-a-doubt the quickest way to go about freeing up needed finances, however refinancing could be the better choice in any of the following circumstances:

• Interest rates are greater than or equal to 2% less than what you are contracted to.
• Interest rates are 1% - 2% less than what you are contracted to, but you have a fixed long term contract.
• You feel that you would be able to pay off the same loan in substantially less time making the same payments.

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