What is home equity and how does it work?

Home equity is the difference between your home’s current market value and the amount you own on your mortgage(s). For example, if your home is valued at $300,000 and your mortgage balance is $200,000, you have $100,000 in available equity. You may have heard of home equity financing referred to as a second mortgage, second lien or second position.

Using your home’s equity as a financial management tool is a smart decision. You’re in control of how and when funds are used, and spend only what you need. There are two ways to access your equity—a home equity loan or a home equity line of credit—you decide which one best fits your situation.

Home equity loan. This is a fixed-rate, fixed-term loan, where funds are disbursed in one lump sump at closing. Interest is assessed on the full amount borrowed. A home equity loan is ideal for large, one-time expenses, such as a kitchen remodel or a room addition.

Home equity line of credit. This is an open-ended revolving line of credit with a variable interest rate. You use funds as you need them and pay interest only on the funds you use. In addition, as you pay down your balance, funds become available to you again up to the approved credit limit. A home equity line of credit is the perfect choice for important ongoing expenses, such as longer-term home improvements where you need funds at varying times for different phases of your project.

To find out which account is right for you,

Why home equity financing?

Whether you choose a home equity loan or a line of credit, you’ll benefit from rates that are lower than most other forms of financing. In addition, the interest is potentially tax-deductible on both. Consult your tax advisor.

Other advantages are that you don’t need to liquidate savings or other investments to pay for the things you need and you have access to your funds in a number of ways. At Wells Fargo you can:

Write a line of credit check
Call to transfer funds
Make withdrawals in person at a Wells Fargo location
Stop by any Wells Fargo ATM

Use an EquityLine® Platinum® card to make purchases; cards can be used where Visa is accepted

*Account access by check, EquityLine® Platinum® card or ATM not available in all states.