snowy yard with 3 story home

Residential real estate values are rising from coast to coast, and interest rates are near historic lows. This is great news for homeowners. Tapping into your home’s value with a home equity loan (HELoan) or home equity line of credit (HELOC) can be a great strategy for paying for your next big life goal or enhancing your overall financial standing.


What is Home Equity?

Home equity is the amount of your home that you own free and clear. It’s the difference between your home’s current fair market value and the balance due on your mortgage. You gain equity in two ways: when you pay down your principal, and when market conditions cause your property to appreciate in value.

Let’s say that three years ago, you bought a house for $300,000 and put 10% down. On the day you got your keys, you had $30,000 in home equity. Since then, by making your mortgage payments every month, you’ve paid down your principal by $20,000 (in addition to paying $25,000 in interest), and the value of your property has increased to $350,000. In this scenario you would now have $100,000 in home equity!

HELoans vs. HELOCs

A home equity loan or HELoan, sometimes called a second mortgage, is typically a variable-rate loan that uses your property as collateral and is distributed in one lump sum. You’ll then pay it back in regular monthly installments over a predefined loan term.

With a home equity line of credit or HELOC, the money isn’t disbursed all at once. You’re given a credit limit based on the amount of home equity you have, and you can access funds as you need them throughout the designated draw period, which is typically ten years.

Your choice between a home equity loan and a HELOC will depend on a variety of factors, but the main one is whether you need a large upfront infusion of cash for one or a few big purchases, or whether you need to fund an ongoing project.

8 Ways to Use Your Home Equity

You can use funds from a home equity loan or HELOC for virtually any purpose, but here are some strategic suggestions that can improve your quality of life as well as your financial footing:

  1. Improve your home. Using your home equity to build more home equity is definitely a win-win.
  2. Upgrade your appliances. Save the planet and save on utility bills with energy-efficient systems.
  3. Consolidate debt. Paying off high-interest credit cards or unsecured loans is a way to get ahead.
  4. Establish an emergency fund. Experts say you need ready access to six months of expenses.
  5. Cover medical expenses. Avoid burdensome medical debt – a $100 billion crisis nationwide.
  6. Pay for tuition. Invest in your own higher education – or your children’s or grandchildren’s.
  7. Get a new car. Find out if a HELoan or HELOC would have a lower interest rate than an auto loan.
  8. Take a vacation. This one might not seem like a financial necessity – but burnout can cost you.


Making the Best Choice

Is a home equity loan or HELOC right for you – right now? A trusted lender can help you to explore all your options and guide you through every step of the process. Here at Citizens Bank, we’ve been serving East Tennessee homeowners for over 85 years and we’re proud to continue that tradition of personalized services. Get in touch with one of our Federally Registered Mortgage Lenders today!