Sponsored Content: If you’re like many homeowners, you may have some equity available in your home, but have no idea how to tap into it — or the best way to use it. With low, fixed rates on home equity loans from Discover® Home Loans or another lender, you may be more tempted than ever to consider your options.
How Do Home Equity Loans Work?
Home equity loans are lump-sum loans that are secured using your home as collateral. Just like your mortgage, if you fail to pay a home equity loan you could lose ownership of your home — that’s why home equity loans are sometimes thought of as a second mortgage.
It also means that home equity loans typically have interest rates that are lower than unsecured borrowing options such as personal loans or credit cards.
When you apply for a home equity loan, a bank will check your eligibility by looking at your credit, home equity available, employment history and other factors to see if you qualify. If you do, you may be able to access funds you can put towards home improvements, debt consolidation, or paying for other large expenses.
How Do Banks Decide Your Home Equity Loan Amount?
If you’ve had your home for many years with no intent to sell, you may not be sure exactly how much you could get out of a home equity loan.
Just like with a purchase mortgage, a home equity loan requires a professional appraisal of your property. This is designed to assess the current value of your home, taking into consideration any improvements you’ve made since taking ownership as well as appreciation.
This appraisal doesn’t only protect the interests of the bank — you’ll want an accurate appraisal as well. While it may seem appealing to get a loan for an inflated valuation of your property, it could cause serious problems if you wanted to sell your home down the line and pay off your loans with the sale.
Depending on the lender you choose, you may be able to borrow up to 90% of your home’s appraised value. That means if your home is worth $400,000, and you still have $200,000 on your mortgage, you could potentially take out up to $160,000 with a home equity loan.
Along with the loan amount, you will want to be aware of any fees or closing costs associated with taking out a home equity loan. You will also have a choice of terms over which you repay the loan that can vary by lender — typically ranging between 10 and 30 years. Be sure to check rates and an estimate of your potential monthly payments before deciding what works best for you.
About Discover Home Loans
Discover Home Loans provides home equity loans and mortgage refinance options with a range of benefits for qualified homeowners. Find options that fit within your budget at discover.com/home-loans. © 2023 Discover Bank, Member FDIC | NMLS ID 684042