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Get More Out of Your Home - Financially

Home ownership is a wonderful investment that typically results in profits for owners. According to statistics from the Federal Reserve, most people who sold their homes in the last five years received an average net capital gain of more than $25,000. You can make use of your investment not only when you sell a house, but also while you are still living in your home by using your home's equity. To determine the equity in your home, simply subtract how much you owe on your mortgage from what your house is worth on today's market.

Generally you can borrow against a majority of the equity in your home. Some lenders will allow you to borrow against all of, and occasionally more than, the total equity in your home. Your first mortgage plus any equity loans can usually total from 70 to 90 percent of the value of your home.

Borrowing against your home's equity has some positive and negative aspects. On the positive side, you receive money to spend that is generally tax deductible, unlike a credit card. The negative side is that you incur some risk, since your house is serving as collateral for the loan, and some of your equity options may not be tax deductible.

You will find three options to using the equity in your home: refinanced mortgages, home equity loans, and home equity lines of credit.

Refinancing your mortgage allows you to change the terms of your mortgage for something better-like a lower interest rate. When you refinance the mortgage amount with some or all of your equity you can receive the equity as cash.

A home equity loan, sometimes called a "term equity loan" or a "second mortgage," allows you to borrow cash against your equity without changing the original mortgage. You receive a lump sum of cash that you must pay back in monthly installments over the next 10 to 20 years. You will generally receive a fixed rate on this type of a loan, and the loan will usually be tax deductible.

Home Equity Lines of Credit (HELOC) generally have few up-front costs once a lender has approved your credit. The lender will provide you with a credit card or checkbook, which allows you to spend the equity in your home. A HELOC is usually tax deductible, but may come with an annual fee. Also be aware that you may not receive a fixed rate of interest on the money you borrow, making your repayment subject to fluctuations in the marketplace.

As you are researching the kind of loan that is right for you be sure to read and understand the terms and conditions and what they mean to your particular financial situation. Be cautious of low introductory rates that disappear shortly after you begin repaying the loan since these rates aren't going to significantly affect your ability to pay off the loan.

Sources used in this article include and

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