Let’s start with a quick definition. Your “equity” is the amount your home is currently worth, minus the amount of any mortgage you have left to pay. In short, it’s the amount of your home you actually own.
There are two ways for you to use this valuable equity.
A home equity loan allows you to borrow money using the equity you’ve built up as collateral. You receive the money in a lump sum payment and usually have a fixed interest rate. Like a mortgage, this loan has two parts: principal (the amount you borrow) and interest (what you pay to borrow it).
A home equity line of credit (HELOC) lets you draw money, as you might need it, multiple times from an available maximum amount. Unlike a home equity loan, HELOCs usually have adjustable interest rates. Monthly payments are applied toward interest only with the option to pay extra toward principal during the draw period. After the “draw period” ends, you may be required to pay off your balance all at once, or you may be allowed to repay over a certain period of time.
Apply for either of these products, and within three business days – by law – you will receive a Loan Estimate with important information and terms of your loan, including the estimated interest rate, monthly payment, and total closing costs. Loan Estimates are standardized, which lets you make easy comparisons.