Home Equity: How To Know What You Have — And When It’s Smart To Use It

Home equity is the difference between the current value of your home and the balance you owe on your mortgage(s). Borrowing against the value of the available home equity is one of the most popular and savvy forms of credit. Why? Because it generally features lower interest rates, the freedom to use the money for any purpose, and potential tax benefits (consult your tax advisor).

First move: Learn how much home equity you have available

Here are 4 easy steps to finding out:

1. Check your mortgage statement or call your lender to learn your mortgage balance. The actual payoff amount will be somewhat higher, so round up the figure slightly. For example, you might round up a $153,000 balance to $155,000.

2. Estimate your current home value in one of two ways:

Call a local Realtor for an estimated market value

Online, enter Home Value Estimator or Home Value Calculator into your search engine, and visit one of the websites that offer this free service.

Either way, the estimate should be based on recent, actual home sales of comparable properties in your neighborhood.

3. Subtracting your mortgage balance from your estimated current home value can provide you with a ball park of how much equity you may have in your home…

4. Estimate the amount of home equity available to borrow by contacting a local lender. Answers may vary based on their home equity lending guidelines and average closing costs, so you may want to shop around.

There are many smart reasons to borrow against home equity.The most popular reasons are:

• Consolidating high-cost debt to ease budget pressures.

• Borrowing to make home repairs or improvements.

• Financing a college education.

• Repayment of medical expenses or other unexpected bills.

• Capitalizing on a business or real estate investment opportunity.