Perhaps the most common use of home equity is to upgrade or improve the existing property. A large portion of homeowners gain access to their property’s increased value through the use of home equity loans or lines of credit. However, another, less common, method is a total refinance for an amount that includes the required equity.
One Monthly Payment
Many homeowners choose a total refinance because it is much simpler than obtaining an equity loan or line of credit. Those who choose an equity loan or credit line will have two monthly payments to handle, versus the one payment for the total refinance. Even further, most homeowners who obtain equity loans do not get them from their existing primary mortgage lender, meaning that they will be paying two different loan amounts to two different companies at two different times of the month.
Make Sure Your Home Improvements Increase the Value of Your House
Regardless of the type of financing used to obtain the equity, it is important that those homeowners planning to remodel or make upgrades carefully consider all the variables of their intentions prior to proceeding. Both lenders and homeowners are usually comfortable using equity to improve the property because the perception is that any upgrades will increase the value of the home. Unfortunately, this is not always the case.
The borrower should consult with a qualified realtor or appraiser prior to making any upgrades or improvements to ensure that such alterations will actually result in a more valuable piece of property.