Home Equity 101

It’s time for Home Equity 101. But, don’t worry, it’s not a difficult subject, so you should be able to ace the course. However, what you do with what you learn can, in the long run, effect your life more than your entire grade point average.Let’s begin with the basics. Your home is worth a certain amount and you probably have a mortgage for part of that. For example, let’s say your house appraises for $250,000 and your mortgage is currently for $200,000. The amount you owe on the loan ($200,000) subtracted from what it’s worth on the open market ($250,000) adds up to the equity you have in your home. In this case your home equity would be $50,000.See how easy it is? But here comes the tough part. What are you going to do with that $50,000 equity you have in your home? Are you going to keep it there in case you ever have some kind of emergency or want to sell your home and have something left over? Or maybe you even like the idea of paying off your mortgage entirely so you own your home free and clear and no longer have the monthly overhead.But, then again, maybe you want to take out a home equity second mortgage or a home equity line of credit to be able to access that $50,000. There are lots of reasons you might want to have your hands on that money. Possibly for something like credit card debt consolidation, medical expenses, a college education for your children, taking a vacation to somewhere you’ve always wanted to go or just to have more cash on hand to spend when you feel like it.However, and here’s the tough part to consider, if you do that, you’ll use up all the equity in your home. And that puts the roof over your head in a shaky position. If anything should happen and you couldn’t cover the extra mortgage payments, the top would blow off of your home investment and you’d no longer have the security of a roof over your head.So, now that you know the basics, it’s time to see if you have the common sense to make a good, sound, grown-up decision about your home equity.