With Home Equity loans increasing in popularity as a method for raising money it is important that people understand the bank of home sweet home and what it actually means and how you can work out what you can borrow.
Borrowing against your home depends on how much you have left to pay on your house compared to the value of your property. So with that in mind here is a little sum:
Value of the home - Mortgage left to pay = Amount you can borrow
The value of the home is the current evaluation not what you originally paid for the property so this could work out more or less than what you paid for the property. Let’s take a look at this as an example.
You purchased your house for $250,000 with a down payment of $50,000 and you borrow $200,000 to secure the property as your own. Over the five years you have paid back $22,000 which means you owe $178,000.
You are lucky enough that your home has increased in value by $120,000 and is now valued at $370,000. So we now have the two values that we need in order to work out your Home Equity:
$370,000 - $178,000 = $198,000
So this wraps up our explanation on how to work out how much you can borrow on your Home Equity Loan. Things are not always this cut and dry but this equation is normally pretty close to the mark. You need to make sure that you get an up to date evaluation of your home in order to ensure you have the equity you need.
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