When you own a home, your mortgage payments help you build equity in the property. Generally, home equity is calculated by subtracting what you owe on all loans secured by your home (including your primary mortgage) from its current market value, which you can estimate with online tools or by securing a professional appraisal.

You can home equity against your home’s equity to meet a variety of financial needs, from paying for college tuition or making large purchases to debt consolidation or funding retirement expenses. However, it’s important to understand the tradeoffs involved with tapping into your home’s equity.

Benefits of Accessing Your Home Equity

Borrowing against your home’s equity may increase the amount of money you owe on your mortgage, which can result in higher monthly payments. You may also have to pay closing costs or fees associated with the loan, which are typically rolled into your first monthly payment. Furthermore, you’ll likely have to maintain a certain level of equity in your property to qualify for a home equity loan or line of credit, as lenders generally expect homeowners to owe no more than 20% of their home’s value.

If you do decide to borrow against your home, remember that if you fail to keep up with the payments on your debt, your lender may initiate foreclosure proceedings. However, borrowing against your home’s equity can often be a more cost-effective option than other types of debt, such as unsecured credit cards or personal loans.…