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Ways to use the equity in your home

Home equity line vs. second mortgage
Home equity line vs. second mortgage
Published: Nov. 24, 2021 at 7:06 AM EST|Updated: Nov. 24, 2021 at 12:33 PM EST
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RICHMOND, Va. (WWBT) - The value of homes has risen the last year, which means you could have more equity in your home than you realize.

Experts say now is a great time if you’re looking at pulling equity from your house to refinance. And there are two ways to do that.

A home equity loan or a HELOC.

A home equity loan is a set amount of money, usually for a set amount of time with a set amount of interest.

“So, if you’re a person who really likes to plan and know exactly what your payments are going to be and what you’re interest rate is going to be. Home equity might be more for you,” said Cherry Dale, a financial coach with the Virginia Credit Union. She says the repayment term is usually a fixed period, typically from five to 20 years.

The interest rate on this type of loan is also much lower than you would get from a credit card-- because your home is the collateral. If you default your house is in jeopardy.

Dale says a HELOC (or a home equity line of credit) has a variable interest rate. “But the interest being variable means it could go up and down based upon what is happening in the market. Right now the interest rates are quite low,” she said.

But the interest you owe could increase in a few years-- depending on what the market does.

And one more thing to know, usually you’re locked into a time frame for a HELOC. at the end of that time-- you owe whatever is left. So, it can look like a balloon payment in the end.

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