I’m in the U.S.
I’ve owned my home for 6 years and would like to do some renovations. Would someone explain to me exactly how home equity loans work?
Is that the best option for this?
Thanks!
In: 1
It’s just a loan, backed by the equity in your house. If you fail to repay, they could take your house to recoupe their losses.
If you are confident in your ability to repay the debt, then yeah, home equity loans are pretty common for renovations.
Very simplified version. Let’s say your house is worth $100,000. You still owe $60,000 on the mortgage.
So you have $40,000 equity, as in, assists you have, minus what you owe, give you a net value of $40,000.
Some company will loan you $40,000, putting your house up for collateral. If you don’t pay it off, they take your house.
It’s simply a form of secured loan, with your house as the security.
As long as you are confident that you can pay it back, then it’s a useful tool.
If you can save up and do the renovations with cash, little by little, that would be much wiser.
Don’t borrow against your home.
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