01.30.2012 / Test Your Home Equity IQ

1.  True or False: Home equity is just another name for home value.

2.  True or False: The interest you pay on a home equity loan or line of credit may be tax-deductible.

3.  True or False: A home equity loan is a revolving line of credit that lets you draw funds from your account multiple times, up to your credit limit.

4.  True or False: All home equity products have a variable interest rate.

5.  True or False: A home equity loan is ideal for major one-time expenses, while a home equity line of credit is best for ongoing expenses or those requiring periodic payments.
Answers

1.  False. Home equity is actually your home's value minus your mortgage balance. It represents the amount of your home that you actually own. If your mortgage is paid off, then your home's value may equal your home's equity, but they are not the same thing. You can actually borrow against your home equity, making it a useful financial tool. Homeowners in the Midwest have been lucky that home values here haven't been hit as hard by the housing market crunch, so many people have more equity than homeowners in other regions.

2.  True.* This potential tax deduction is one of the benefits that home equity borrowing has compared to other types of financing, such as credit cards.

3.  False. That description fits a home equity line of credit, or HELOC. A HELOC allows you to borrow funds whenever you want. As you draw funds and then pay down your balance, those funds become available to use again. With a home equity loan, you receive your funds in one lump sum at the time the loan is opened.

4.  False. A HELOC typically has a variable interest rate (although some fixed-rate options may be available), and with a HELOC you are only charged interest on the funds you actually use. But a home equity loan has a fixed interest rate with a predictable monthly payment.

5.  True. For example, you might use a home equity loan to consolidate debt or purchase a new vehicle. You might use a HELOC for a multi-phase home improvement project or college tuition.

To learn more about home equity loans and lines of credit or call (402) 602-5626 to talk with a First National Bank Mortgage Specialist and see if one of these products may be the right financing tool for your needs.

Have you done anything cool and exciting with your home equity?  We would love to hear about it! Post a comment at www.facebook.com/fnbomaha

* Consult your tax advisor regarding the deductibility of interest and potential tax savings.