If you’ve paid off a significant amount of your home loan, a home equity home loan could unlock a range of new opportunities.
How does an equity loan work?
As your home loan slowly diminishes, the value of your home increases and your ‘equity’ also grows. Equity refers to the value of your asset, minus your loan balance. So, if your house is worth $500,000 and your home loan balance is $100,000, your equity in the property is $400,000.
A home equity home loan involves a lender assessing the value of your home and your debt obligations and offering you a percentage of that equity to use.
The loan portion is usually set up as a revolving line of credit, which means if you choose not to spend the money available in your home equity loan, you won’t make any repayments. This is because your repayments are calculated as interest on the amount you’ve spent. The more you spend, however, the higher the interest payments will be.
This works in reverse too, you may find your repayments decreasing as you pay down your home equity loan’s balance.
For help finding the loan that is right for you, talk to a Choice Home Loans broker today.
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