Home Equity Mortgages
Home equity mortgages allow you to access the equity that lies in your biggest investment: your property. This loan lets you use the equity in your home as collateral so you can pay for renovations, education, and swelling credit card debt. When you take out a home equity mortgage, a lien is created against your home using its existing equity.
How are Home Equity Mortgages Calculated
In order to calculate home equity mortgage a simple formula is used. You subtract the amount owning on your mortgage from the value of your home and that’s how much you’re entitled to.
Value of your home – the amount owing on your mortgage = home equity
Normally, homes increase in value as they age. So, if you’ve kept your home in somewhat good shape, it’s safe to say that’s its value has gone up, giving you more equity.
Is a Home Equity Mortgage Like a Second Mortgage?
Yes. Like second mortgage, a home equity mortgage allows you to use your home as collateral. Both second mortgages and home equity mortgages are secured against the value of your property. The rates for a home equity mortgage generally mimic those of second mortgages, as in they are higher than those of a first mortgage. Furthermore, home equity mortgages also need to be paid on a monthly basis like traditional mortgages.
What Do I Need to Qualify for a Home Equity Mortgage?
In order to qualify for a home equity mortgage, you need to have good credit. As with any other loan you acquire, your credit history needs to be strong.
What Can I Use the Equity in My Home For?
The equity found in your home is yours to use as you wish. In most cases people use their home equity mortgage to send a loved one to school, wedding expenses, renovations and property upkeep, as well as paying down credit cards.
What you need to know
- There are two types of mortgages: open and closed.
- Closed mortgages usually have lower mortgage rates than open ones.
- A prepayment privilege allows you to make extra payments towards your mortgage at certain agreed upon times in a closed mortgage, or whenever you feel like it in an open mortgage.
- The amortization period is the amount of time it takes for you to pay off your mortgage completely.
- The mortgage term refers to the length of time your agreement and interest rate is in effect, usually five or more years
- At the end of each term you are able to renew your mortgage.
- Interest rates can be fixed or variable but there does exist a hybrid rate that is not generally recommended for your first mortgage.