Home Equity FAQs

What is home equity?
Home equity is the portion of a home that a consumer owns: the difference between the home's value and the balance of the consumer's mortgage.

How much money can I get when borrowing using home equity?
That depends on several factors: your loan-to-value ratio (what you currently owe on your home versus its value), your credit score and your income. Different lenders are willing to lend different amounts; shop around for the program that best fits your needs.

Why use home equity?
Home equity is the most valuable asset many people have, making home equity many peoples' best option for a large loan. Also, in many cases, the interest is tax deductible (check with your tax advisor for details).

What can home equity be used for?
It can be used for anything, though most consumers use home equity for big-ticket items. This includes capital to invest in a franchise or other business opportunity; paying for home improvements or college tuition; and even paying off credit card debt.

How do refinancing, second mortgages and home equity lines of credit differ?
Refinancing (also called cash-out refinancing) is when a borrower's mortgage is replaced with a new mortgage, at a lower interest rate and for more than is owed. The borrower pockets the difference in cash.

A second mortgage is a loan taken out in addition to a borrower's current mortgage. The borrower receives the funds in one lump sum and pays the balance off with fixed monthly payments.

Home equity lines of credit are revolving lines of credit, similar to credit cards, meant to be used on an as-needed basis. Money repaid can often be borrowed again. Payments fluctuate with interest rates, though there are caps on how much the interest rate can change each month and during the duration of the line of credit.