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One of the biggest advantages and most underrated aspects of owning your own home in the Sarasota real estate market is the concept of equity. For those that are new to the home ownership game, equity is simply the concept that the home that you buy goes up in value as you make improvements.
These improvements can be small, like a new coat of paint or some nice landscaping, or major, like adding a new room or building a brand new garage. Equity is almost like free money that you gain by simply taking care of your Sarasota home.
There are two conventional ways that people can get access to this money. There is the old-fashioned home equity loan and the newer home equity line of credit. Most home owners know about the home equity loan, chances are their parents had one. They have been around for generations and are a great way for you to pay down other bills, put your kids through college or to do major home renovations. But home equity lines of credit are gaining in popularity.
Let´s take a look at the differences between these two ways of accessing your home´s free money reserves.
- Flexibility. One of the best assets of a home equity line of credit over a traditional home equity loan. Once you´re approved for the line of credit, you can borrow as much as you want, any time you want, up to a figure that you and the bank agreed upon. That figure is usually around three fourths of your total amount of equity you´ve built up in your home. A home equity loan, on the other hand, is for a set amount to be borrowed over a set amount of time. A line of credit is much more flexible and much more desirable for most home owners.
- Payback. The payback with a home equity line of credit is also much more flexible then a traditional home equity loan. With the line of credit, you can pay it back bit by bit and the interest on it varies with current market conditions. With a traditional home equity loan, you have a set payback period that you must adhere to, even if you´re in tight financial shape. A home equity line of credit allows for a lot of wiggle room should you need it when it comes to payback.
- Booming popularity. Up until two years ago, banks were offering about the same amounts of home equity loans as they were home equity lines of credit. Well, the two aren´t equal anymore. According to a recent study, over the past year, the number of home equity lines of credit has outpaced home equity loans by almost three to one. What does this mean for the average home owner? It means more options for you when you go to your banker and tell them you want a home equity line of credit. As their popularity increases, your bank will have more options, more choices and more ways for you to take advantage of this fantastic program.
- One disadvantage of the home equity line of credit is that studies have shown that most borrowers pay them back slower than traditional home equity loans. What that means for the bank is that you might get a slightly higher interest rate so that the bank has money coming in regardless. One advantage is that people tend to borrow more on their lines of credit (almost 15,000 more according to one study) then they do on traditional home loans. This means the bank will be more than happy to grant you a home equity line of credit since it means they will make more over time then they would with a home loan.
While no one knows exactly what the rise in home equity lines of credit mean for the future, they have become an extremely popular way for home owners to get access to their stored up money. No matter which method you choose, owning a home and building equity is a great way to help pay off other bills, help with your children´s education or do renovations that can, in turn, add even more equity to your Sarasota FL real estate home.
GBrey |
