What is equity and how does it work? Home equity is the difference between the value of your home and how much you owe on your mortgage. Home equity is the difference between the value of your home and how much you owe on your mortgage. For example, if your home is worth $250,000 and you owe $150,000 on your mortgage, you have $100,000 in home equity.

Your home equity goes up in two ways:

• As you pay down your mortgage
• If the value of your home increases

You may be able to borrow money secured against your home equity. Interest rates on loans secured against home equity can be much lower than other types of loans. Financing for equity will look different from a mortgage loan. Your mortgage broker will be able to go over with you which financing options are available for home equity loans. You must go through an approval process before you can borrow against your home equity. If you’re approved, your lender may deposit the full amount you borrow in your bank account at once.

Other financing options to look at in refinancing your home would be a refinancing loan, a second mortgage, a HELOC, or a loan or line of secured credit within your home. Something to keep in mind with refinancing, you may find that the interest may be different than the part that is on your original mortgage. You may also find that you have to pay a new mortgage loan insurance premium.

When you and your mortgage broker go over the option of a second mortgage, some points that you will find about this option are that you are able to borrow up to 80% of the appraised value of your home, minus the balance on your mortgage. The loan is secured against your home equity. While you pay off your second mortgage, you also need to continue to pay off your first mortgage.

A HELOC is very similar to a regular line of credit. You have the ability to borrow money when needed, up to the credit limit amount. You are able to take the money out of the HELOC, when you pay it back you are able to borrow again. This is a secured line of credit against your home. The interest rates are variable, they will change as the market interest rates go up or down.

One last option to look at when borrowing against your home is to borrow on amounts that you prepaid. If you have previously made lump sums on your mortgage, your lender may allow you to re-borrow that money. You can borrow the total amount of all the prepayments you have made. Any money you re-borrow will be added to the total of your mortgage. With this option, you will pay either a blended interest rate or the same interest rate as your mortgage on the amount you borrow. A blended interest rate combines your current interest and the rate currently available for a new term.

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