Looking to make home improvements or purchase a new car? A home equity loan may be what you are looking for. Your home’s equity is the difference between the fair market value of your home (appraised value) and your outstanding mortgage balance. After making payments for several months or years, your home’s “savings” account, or your home equity, has built up. You can pull cash out of this equity account through a home equity loan.

There are two types of ways to pull money out of your home for an equity loan. If you are unsure of how much money you will need, a credit line loan allows you to have a source of cash that can be pulled out on an as-needed basis. In a credit line loan, you only pay interest on the amount that you use, and you can pull more cash out at any time, up to the full loan amount. A line of credit loan carries a variable interest rate that may rise or fall based on the current markets’ prime rates and therefore your monthly payments may also vary.

If you know exactly how much you need to borrow from your home, a fixed rate equity loan may be your best option. A fixed rate equity loan will give you the cash you need in a single, lump-sum amount. The loan is repaid at a set rate, providing predictable monthly payments.

Equity loans are often used to pay for home improvements that will increase the re-sale value of your home. Value-added improvements such as remodeling a bathroom or kitchen, making home additions, painting the interior or exterior of your home or installing new windows are considered good ways to help increase the future selling price of your home. Because you are taking the money out of your home and then re-investing it in the form of renovations, your home will be worth more on the market, thereby giving you a greater return on your overall investment.

While the interest on a home equity loan is often tax deductible, it is important to remember that you are pulling money out of your home’s savings account. Speak with your loan advisor today to find out if a home equity loan is right for you!