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What Is A Home Equity
Loan?
The difference between what you owe on your mortgage and the current
value of your home is your equity, or the portion of the home that you
actually own. The longer you own your home, and the more you contribute
to paying off its mortgage, the more your equity share in the property
increases. If your home is valued at $225,000 and you still owe $125,000
on your current mortgage, your equity in the home is $100,000.
In this particular case
you would then be allowed to borrow $100,000 buy allowing a second lean on the
property for that amount or a portion of it. The amount that you borrow will
then be deducted form the total amount of equity that you had.
Note: Once you enter
into an agreement of this kind you must be certain not to default on the second
lien as the property itself is now being used to guarantee the loan. By defaulting
you can go into foreclosure and lose your hard earned investment, the home,
to the lender.
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