Home equity is the difference between the market value of a home and the amount of debt that is owed against it. Home equity can be used as collateral for a loan, or as a source of funds for home improvements, debt consolidation, or other large purchases. It is important to note that the amount of home equity available will vary depending on the market value of the home and the amount of debt still owed. For example, if the market value of a home is $500,000 and there is a mortgage of $300,000 still outstanding, the home equity is $200,000.
Home equity can be accessed through a variety of methods, such as a home equity loan, a home equity line of credit (HELOC), or a cash-out refinance. Home equity loans are typically fixed-rate loans that are taken out for a specific period of time and are repaid in monthly installments with interest. A HELOC is a line of credit that is secured by the home’s equity and can be used for any purpose. Finally, a cash-out refinance is a type of loan in which the borrower refinances their existing mortgage, taking out a larger loan and using the difference to access their home equity.