What is Equity in a Home? Guide to HELOC’s and Equity Loans in New Hampshire
Equity in your house is the difference between the full market value of your home and what you owe on the home.
Example 1:
- Market value = $500,000
- Mortgage Balance = $325,000
- Equity = $175,000
The full market value is usually done by an appraisal ordered by you that your bank will arrange, if you were to apply for an equity loan or line of credit. Sometimes they are able to do an “automated valuation system” to get the value on your home. This would save you a lot of money upfront as appraisals can cost up to $500.
One step further on equity loans, you can get better interest rates depending on the amount of equity you have based on a percentage basis. Typically you will get a better interest rate if you borrow up to 85% of the value of your home. Let’s say your home has an appraised market value of $100,000 and you owe $50,000 on your primary mortgage. In this instance you have a 50% LTV or Loan to Value. You can get a better interest rate by borrowing up to the 85%, in this example $35,000.
100% LTV Equity Loans would typically have a percentage point more that you will pay back on interest.
Example 2 with no Equity:
- Market Value = $250,000
- Mortgage Balance = $300,000
- Equity = None
In this instance you would be considered “upside down” or “underwater” on your mortgage and would not be able to take an equity loan.
How does a HELOC work?
HELOC stands for Home Equity Line of Credit. This is structured like a line of credit that you can draw on with checks or go to the bank to withdraw. You pay interest only for 10 years until the payback period starts for the next 10 years.
Where is a good place to apply for an equity loan in New Hampshire?
I recommend Bellwether Community Credit Union. They offer great rates and the most relaxed policies compared with other banks and credit unions.
Why would you want to take an equity loan?
It be a great option to consolidate debt, pay for a wedding, invest in a second home or even to make upgrades to your current home.
What is the difference between a Home Equity Loan and HELOC (Home Equity Line of Credit)?
A home equity loan is structured similar to a mortgage, with a set term and interest rate. A HELOC can have a variable rate and act as a credit card that you can draw on and use for the next 10 years. After the 10 years the repayment period begins.
How long does it take to get an Equity Loan or HELOC?
The whole process can take about a month depending on how fast the bank gets everything they need. You will start with submitting an application then waiting for an automated valuation system or appraisal. They will offer you options to go straight for the appraisal or choose the auto valuation system. If you have to order an appraisal it can take 2-3 weeks to come back. If the appraisal comes back less than the automated value, that is the value they will use.
