You surely have heard about home equity loans (those loans that use the remaining value of your property to secure additional funds). But, do you know how to assess your home equity? This is an important issue as it will let you know whether you can count on your available equity for expenses, investments or other purposes or not and also how much money you can obtain out of your home if you decide to refinance your mortgage.The Calculation of Home EquityThe mathematical calculation needed to obtain the resulting available equity on your home is quite simple: to the actual value of your property, you need to subtract the amount of remaining debt on your mortgage. But though it is a mere subtraction, the complexity for those who are not familiar with real estate resides on the securing of the figures needed to perform the calculation.Common mistakes are for example the use of the purchase price instead of the current value, or the matching of the debt already paid on your mortgage with the amount of available equity regardless of the facts that interests are included and that the property’s value may have increased also. Therefore, it is important to know where to obtain the information you need.Basically, the property needs to be appraised by a real estate agent. Many agents are willing to appraise your property for free but you can easily obtain a quite accurate figure by inquiring about recent purchase prices of similar properties on the neighborhood. And as regards to the remaining debt on your mortgage loan, you can ask your lender about this figure at any time and they are obliged to provide you with the information. You just need to ask for it.With the above information at hand you can easily subtract both figures and obtain the amount of home equity available for requesting a loan. Each lender will require this info to provide you with a loan quote and pre-qualifying your for a loan. Thus, if you know beforehand which lender you want to apply to, you can leave all the trouble of assessing your available equity to them.125% Financing Is Feasible?You may have heard about 125% financing. This implies that your mortgage and the home equity loan combined add up to 125% of your property’s value. How can this be done? Imagine that you take a secured equity loan till 100% is reached and you add up another 25% unsecured. The interest rate of the last one will be higher. But if you combine both loans into a single loan you can obtain a lower rate and the lender gets to secure the remaining amount once you have cancelled sufficient installments or once the value of the property reaches the amount of outstanding debt.These loans however are not easy to qualify for because till the value of the property raises or the debt drops, a significant amount of debt remains unprotected. Therefore, you should expect approval only for those with fair to perfect credit. If your credit is below average, chances are that you will get declined.
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