|
Explain to me how equity works, in terms of a major renovation?
| Posted By |
Message |
Kitten1929
LIF Adult
Member since 1/13 6040 total posts
Name:
|
Explain to me how equity works, in terms of a major renovation?
In the next few years, we are toying with the idea of staying in our starter home or moving to a larger house. We have plenty of land, but a small house, and any more children would require doing an extension or going up to a second story. We already have about $50k equity in the house, but in a few years, would hopefully have more.
My boss had mentioned a HELOC to pay for the renovation, but I have no clue how this works. For example, if we had $100k in equity, we could pull that to pay for an extension - so I'm paying my regular mortgage payment, and then a HELOC payment as well?
This won't happen for probably 2 years, I'm just looking to understand this concept better.
|
Posted 1/30/15 7:29 PM  |
| |
|
Long Island Weddings
Long Island's Largest Bridal Resource | Prudential Douglas Elliman Real Estate |
ChilisWife
God Bless America
Member since 5/05 3572 total posts
Name:
A.K.
|
Re: Explain to me how equity works, in terms of a major renovation?
We are going through this decision now. I don't know what a HELOC loan is. However, I did speak with a mortgage broker about how we can pull cash out of the house. Basically, you could refinance your current mortgage to take out a new mortgage - so in that scenario, you would only have one payment still. Rates are low now so that's good, however banks are reluctant to loan more than 80% of the home's value.
For example, let's say your house is appraised at 500K and your principal mortgage balance is 400K. You can't really pull equity cash out because 400K is already 80% of the value. However, if your mortgage balance was only 300K, then you could refinance with a new 400K mortgage and the bank could write you a check for 100K. Except it still wouldn't be 100K because closing costs would also have to be taken out (10-15K).
I could be wrong but this is how I understood it.
|
| Posted 1/30/15 10:24 PM |
| |
|
jellybean78
:)
Member since 8/06 13103 total posts
Name:
Mommy
|
Explain to me how equity works, in terms of a major renovation?
HELOC = home equity line of credit I believe it functions likens credit card in the fact that the bank extends you a line of credit (I.e.$50k) you can use as much or as little as you need.
You can also do a cash out refinance so let's say your house is worth $500k and you owe $400k you can refinance and take out up to $100k in equity this changes your mortgage terms though.
|
| Posted 1/30/15 10:37 PM |
| |
|
olive98
LIF Adolescent
Member since 11/12 791 total posts
Name:
|
Explain to me how equity works, in terms of a major renovation?
Never borrow against your house. Way too risky.
|
| Posted 1/30/15 11:10 PM |
| |
|
chilltocam
LIF Adult
Member since 11/11 9141 total posts
Name:
|
Re: Explain to me how equity works, in terms of a major renovation?
Posted by jellybean78
HELOC = home equity line of credit I believe it functions likens credit card in the fact that the bank extends you a line of credit (I.e.$50k) you can use as much or as little as you need.
You can also do a cash out refinance so let's say your house is worth $500k and you owe $400k you can refinance and take out up to $100k in equity this changes your mortgage terms though.
This is correct about a HELOC. You only pay interest on thee portion of the money that you have used. I don't know if it still works this way, but in the past, you could make interest only payments (instead of principle & interest) for a certain period of time. Also, as compared to a refi which you can usually do for 30 years, a HELOC can (could) only be for a term of 15 years at the longest
|
| Posted 1/31/15 11:55 AM |
| |
|
Potentially Related Topics:
Currently 603880 users on the LIFamilies.com Chat
|
Long Island Bridal Shows
|
