Home-Equity Loan

Understanding Home Equity

What is home equity and how is it calculated?

Home equity refers to the portion of a homeowner's property that is owned outright, without any outstanding mortgage or other liens. It represents the difference between the current market value of the property and the outstanding balance on any loans secured by the property. Home equity is an important financial asset for homeowners as it can be leveraged to obtain a home-equity loan or line of credit, which can be used for various purposes such as home improvements, debt consolidation, or other financial needs.

To calculate home equity, one needs to determine the current market value of the property and subtract any outstanding mortgage or other debts secured by the property. The most common method to estimate the market value is through a professional appraisal, which involves an expert evaluating the property based on various factors such as location, size, condition, and recent sales of comparable properties in the area. Alternatively, homeowners can also use online valuation tools or consult real estate agents to get an estimate of their property's value.

Once the market value is determined, the next step is to subtract any outstanding mortgage or debts secured by the property. This includes the principal balance of the mortgage loan, as well as any other liens such as home equity loans or lines of credit. The resulting figure represents the homeowner's equity in the property.

For example, if a homeowner's property is appraised at $400,000 and they have an outstanding mortgage balance of $250,000, their home equity would be $150,000 ($400,000 - $250,000). This means that they own $150,000 worth of equity in their property.

It is important to note that home equity can change over time due to fluctuations in property values and changes in outstanding debts. If property values increase or if the homeowner pays down their mortgage, their home equity will increase. Conversely, if property values decline or if additional debts are incurred against the property, home equity may decrease.

Home equity is a valuable asset that can provide homeowners with financial flexibility. It can be utilized through a home-equity loan or line of credit, where homeowners can borrow against their equity while using their property as collateral. The amount that can be borrowed is typically limited to a certain percentage of the home's appraised value, known as the loan-to-value ratio. This ratio varies depending on factors such as the lender's policies, the homeowner's creditworthiness, and the purpose of the loan.

In conclusion, home equity represents the portion of a homeowner's property that is owned outright, without any outstanding mortgage or other liens. It is calculated by subtracting the outstanding balance on any loans secured by the property from the current market value of the property. Homeowners can leverage their home equity through home-equity loans or lines of credit, providing them with access to funds for various financial needs. Understanding home equity is crucial for homeowners to make informed financial decisions and utilize this valuable asset effectively.

What factors contribute to the increase or decrease of home equity?

Factors that contribute to the increase or decrease of home equity can be categorized into two main groups: market factors and homeowner actions. Market factors encompass the broader economic conditions and real estate market trends, while homeowner actions refer to the decisions and actions taken by individual homeowners. Understanding these factors is crucial for homeowners and potential buyers alike, as they directly impact the value of their most significant asset – their home.

Market factors play a significant role in determining the increase or decrease of home equity. The overall health of the economy, including factors such as GDP growth, employment rates, and interest rates, can influence home values. During periods of economic growth, home values tend to rise, leading to an increase in home equity. Conversely, economic downturns can result in declining home values, thereby reducing home equity.

Real estate market trends also affect home equity. Supply and demand dynamics, as well as regional factors such as population growth and migration patterns, can impact property values. In areas with high demand and limited supply, home values are likely to appreciate, contributing to an increase in home equity. Conversely, areas experiencing a decline in demand or oversupply may see a decrease in home values, subsequently reducing home equity.

Homeowner actions also play a crucial role in influencing home equity. One of the primary drivers of increasing home equity is making mortgage payments over time. As homeowners make regular mortgage payments, they gradually reduce their outstanding loan balance, which increases their equity stake in the property. Additionally, making extra principal payments or refinancing to a shorter loan term can accelerate the equity-building process.

Home improvements and renovations can also contribute to an increase in home equity. By enhancing the property's condition, functionality, or aesthetic appeal, homeowners can potentially raise its market value. However, not all improvements yield the same return on investment. Factors such as the type of improvement, local market conditions, and quality of workmanship can influence the extent to which home equity is increased.

Another homeowner action that can impact home equity is the accumulation of debt secured by the property. Taking out additional loans, such as a home equity loan or line of credit, can reduce home equity. These loans allow homeowners to borrow against the equity they have built, but they also increase the overall debt burden and reduce the net equity in the property.

External factors, such as natural disasters or changes in zoning regulations, can also affect home equity. Catastrophic events like hurricanes, floods, or earthquakes can cause significant damage to properties, leading to a decrease in home values and subsequently reducing home equity. Similarly, changes in zoning regulations that restrict property use or density can impact home values and, consequently, home equity.

In conclusion, several factors contribute to the increase or decrease of home equity. Market factors, including economic conditions and real estate market trends, play a significant role. Homeowner actions, such as making mortgage payments, home improvements, and taking on additional debt, also influence home equity. Understanding these factors empowers homeowners to make informed decisions and maximize the value of their homes.

How does a home-equity loan differ from a traditional mortgage?

A home-equity loan, also known as a second mortgage, differs from a traditional mortgage in several key aspects. While both types of loans involve borrowing against the value of a property, they serve different purposes and have distinct characteristics.

1. Purpose: The primary purpose of a traditional mortgage is to finance the purchase of a home. It is used to borrow a large sum of money upfront to cover the cost of the property, which is then repaid over a long period, typically 15 to 30 years. On the other hand, a home-equity loan allows homeowners to tap into the equity they have built up in their property and borrow against it for various purposes, such as home improvements, debt consolidation, education expenses, or other major expenses.

2. Loan Structure: Traditional mortgages are typically structured as installment loans, where borrowers make regular monthly payments that include both principal and interest. These payments gradually reduce the loan balance over time until it is fully repaid. Home-equity loans, however, can be structured as either installment loans or lines of credit. Installment loans follow a similar structure to traditional mortgages, with fixed monthly payments over a set term. Lines of credit, on the other hand, provide borrowers with a predetermined credit limit from which they can draw funds as needed, similar to a credit card.

3. Loan Amount: Traditional mortgages are usually larger in size compared to home-equity loans. When purchasing a home, the mortgage amount is determined by the purchase price of the property and the borrower's down payment. In contrast, home-equity loans are typically limited to a percentage of the home's appraised value minus any outstanding mortgage balance. This percentage, known as the loan-to-value ratio (LTV), varies depending on factors such as the lender's policies, the borrower's creditworthiness, and the current market conditions.

4. Interest Rates: The interest rates for traditional mortgages and home-equity loans can differ. Traditional mortgages often have lower interest rates since they are secured by the property being purchased and are considered less risky for lenders. Home-equity loans, on the other hand, may have slightly higher interest rates due to the increased risk associated with being a second lien on the property. However, the interest paid on both types of loans may be tax-deductible, subject to certain limitations and conditions.

5. Repayment Terms: Traditional mortgages typically have longer repayment terms, commonly ranging from 15 to 30 years. Home-equity loans, on the other hand, often have shorter repayment terms, typically ranging from 5 to 20 years. The shorter repayment period for home-equity loans is due to their smaller loan amounts and the fact that they are often used for specific purposes rather than financing the entire purchase of a property.

6. Loan Approval Process: The approval process for traditional mortgages and home-equity loans also differs. When applying for a traditional mortgage, lenders assess various factors such as credit history, income, employment stability, and debt-to-income ratio to determine the borrower's eligibility. Home-equity loans also consider these factors but additionally take into account the amount of equity in the property. Lenders typically require a minimum amount of equity, often around 15% to 20%, before approving a home-equity loan.

In summary, while both traditional mortgages and home-equity loans involve borrowing against the value of a property, they serve different purposes and have distinct characteristics. Traditional mortgages are used to finance the purchase of a home, while home-equity loans allow homeowners to tap into their accumulated equity for various purposes. The loan structure, amount, interest rates, repayment terms, and approval process all differ between these two types of loans.

What are the advantages of using a home-equity loan?

A home-equity loan, also known as a second mortgage, can offer several advantages to homeowners. These loans allow individuals to borrow against the equity they have built up in their homes, providing them with access to a significant amount of funds. Here are some key advantages of using a home-equity loan:

1. Lower interest rates: Home-equity loans typically have lower interest rates compared to other forms of borrowing, such as credit cards or personal loans. This is because the loan is secured by the value of the home, reducing the risk for lenders. As a result, homeowners can save money on interest payments over the life of the loan.

2. Tax benefits: In many countries, the interest paid on a home-equity loan may be tax-deductible, making it an attractive option for homeowners seeking to reduce their tax liability. However, it's important to consult with a tax professional to understand the specific tax implications based on individual circumstances and local regulations.

3. Large borrowing capacity: Home-equity loans allow homeowners to access a substantial amount of money, often up to 80-90% of their home's appraised value minus any outstanding mortgage balance. This makes them an ideal choice for financing major expenses like home renovations, education costs, or debt consolidation.

4. Flexibility in use: Unlike some other types of loans that have specific purposes, home-equity loans provide borrowers with flexibility in how they use the funds. Whether it's funding a child's education, starting a business, or covering medical expenses, homeowners have the freedom to allocate the loan proceeds as they see fit.

5. Potential for increasing home value: Investing in home improvements using a home-equity loan can potentially increase the value of the property. Renovations like kitchen upgrades, bathroom remodels, or adding additional living space can enhance the overall appeal and marketability of the home. This can be particularly advantageous when selling the property in the future.

6. Consolidation of high-interest debt: Homeowners burdened with high-interest debt, such as credit card balances or personal loans, can use a home-equity loan to consolidate these debts into a single, more manageable payment. By doing so, they can potentially save money on interest and simplify their financial obligations.

7. Access to funds in emergencies: Home-equity loans can serve as a financial safety net during unexpected situations or emergencies. Whether it's covering medical expenses, repairing damage to the home, or dealing with job loss, having access to a home-equity loan can provide homeowners with peace of mind and financial stability.

It's important to note that while home-equity loans offer numerous advantages, they also come with certain risks. Borrowers should carefully consider their ability to repay the loan and ensure they understand the terms and conditions, including any potential fees or penalties. Consulting with a financial advisor or mortgage professional can help individuals make informed decisions based on their specific circumstances.

What are the potential risks and drawbacks of taking out a home-equity loan?

Potential risks and drawbacks of taking out a home-equity loan should be carefully considered by homeowners before making a decision. While home-equity loans can provide access to funds for various purposes, they also come with certain risks that individuals should be aware of.

1. Risk of foreclosure: One of the most significant risks associated with a home-equity loan is the potential for foreclosure. When taking out a home-equity loan, homeowners use their property as collateral. If they fail to make timely payments or default on the loan, the lender has the right to foreclose on the property, potentially leading to the loss of one's home.

2. Increased debt burden: Home-equity loans add to an individual's overall debt burden. Borrowers need to consider their ability to repay the loan in addition to their existing mortgage and other financial obligations. Taking on too much debt can strain one's financial situation and make it challenging to meet monthly payments.

3. Variable interest rates: Home-equity loans often come with variable interest rates, which means that the interest rate can fluctuate over time. While initially, the interest rate may be low, it can increase significantly in the future, leading to higher monthly payments. This uncertainty makes it difficult for borrowers to plan their finances effectively.

4. Closing costs and fees: Similar to a mortgage, home-equity loans typically involve closing costs and fees. These costs can include application fees, appraisal fees, attorney fees, and more. Borrowers should carefully consider these additional expenses when evaluating the affordability of a home-equity loan.

5. Limited equity growth: By taking out a home-equity loan, homeowners reduce the amount of equity they have in their property. This reduction in equity can limit future opportunities, such as refinancing or selling the home for a profit. It is crucial to assess the long-term implications of reducing one's equity before deciding to take out a home-equity loan.

6. Misuse of funds: Another potential drawback is the risk of misusing the funds obtained through a home-equity loan. If the loan proceeds are used for non-essential or frivolous purposes, borrowers may find themselves in a worse financial position. It is essential to have a clear plan for how the funds will be used and ensure they are allocated responsibly.

7. Market fluctuations: Home-equity loans are tied to the value of the property. If the housing market experiences a downturn, the value of the property may decrease, potentially leaving homeowners with negative equity. This situation can make it challenging to refinance or sell the property in the future.

8. Resetting loan terms: Some home-equity loans have terms that allow for interest-only payments for an initial period, after which the loan terms reset, requiring full principal and interest payments. Borrowers should be aware of these terms and understand the potential impact on their monthly payments when the loan terms reset.

In conclusion, while home-equity loans can provide homeowners with access to funds, it is crucial to consider the potential risks and drawbacks associated with these loans. Homeowners should carefully evaluate their financial situation, ability to repay the loan, and long-term goals before deciding to take out a home-equity loan. Seeking professional advice from financial experts can also help individuals make informed decisions regarding their financial well-being.

How can homeowners access their home equity through a loan?

Homeowners can access their home equity through a loan by utilizing various financial instruments specifically designed for this purpose. One such instrument is a home-equity loan, also known as a second mortgage. This type of loan allows homeowners to borrow against the equity they have built up in their homes.

To access their home equity through a loan, homeowners typically need to meet certain eligibility criteria set by lenders. These criteria may include factors such as credit score, income level, and the amount of equity available in the home. Once these requirements are met, homeowners can proceed with the loan application process.

The first step in accessing home equity through a loan is to determine the amount of equity available. Equity is the difference between the current market value of the home and the outstanding balance on the mortgage. For example, if a home is valued at $300,000 and the mortgage balance is $200,000, the homeowner has $100,000 in equity.

Once the equity amount is determined, homeowners can decide how much they want to borrow against it. Lenders typically have limits on the loan-to-value ratio, which is the percentage of the home's value that can be borrowed. For example, if the lender allows a loan-to-value ratio of 80%, and the home is valued at $300,000, the maximum loan amount would be $240,000 (80% of $300,000).

After determining the loan amount, homeowners can choose between two types of home-equity loans: a fixed-rate loan or a variable-rate loan. A fixed-rate loan provides a lump sum of money upfront and has a fixed interest rate and monthly payment over the loan term. This type of loan is suitable for homeowners who prefer stability and predictable payments.

On the other hand, a variable-rate loan, also known as a home-equity line of credit (HELOC), provides homeowners with a line of credit that they can draw from as needed. The interest rate on a HELOC is typically variable and may fluctuate over time. Homeowners can borrow and repay funds from the line of credit during the draw period, which is usually several years. After the draw period ends, a repayment period begins, during which homeowners can no longer borrow and must start repaying the loan.

Once homeowners have chosen the type of home-equity loan that suits their needs, they can submit an application to the lender. The application process typically involves providing documentation such as income verification, proof of homeownership, and a property appraisal. Lenders will also assess the homeowner's creditworthiness and may request additional information if needed.

Upon approval of the loan application, homeowners can access their home equity through the loan. For a fixed-rate loan, they will receive a lump sum of money, while for a HELOC, they can access funds as needed within the draw period. Homeowners should be aware that borrowing against their home equity will result in additional debt and interest payments, which need to be managed responsibly.

In conclusion, homeowners can access their home equity through a loan by meeting eligibility criteria set by lenders and choosing between a fixed-rate loan or a variable-rate loan (HELOC). By understanding the available equity, determining the loan amount, and going through the application process, homeowners can tap into their home equity to meet various financial needs. However, it is crucial for homeowners to carefully consider their financial situation and obligations before proceeding with a home-equity loan.

What are the typical interest rates associated with home-equity loans?

Home-equity loans, also known as second mortgages, are a popular financial tool that allows homeowners to borrow against the equity they have built up in their homes. One of the key considerations when obtaining a home-equity loan is the interest rate associated with it. Interest rates for home-equity loans can vary depending on several factors, including the borrower's creditworthiness, the loan-to-value ratio, and prevailing market conditions.

Typically, home-equity loan interest rates are higher than those for primary mortgages but lower than rates for unsecured personal loans or credit cards. The interest rates for home-equity loans are generally fixed, meaning they remain constant over the life of the loan. This stability can be advantageous for borrowers who prefer predictable monthly payments.

The specific interest rate a borrower can expect to receive on a home-equity loan is influenced by their credit score and history. Lenders assess a borrower's creditworthiness to determine the level of risk associated with lending them money. A higher credit score generally leads to more favorable interest rates, as it indicates a lower risk of default.

Loan-to-value (LTV) ratio is another crucial factor in determining the interest rate for a home-equity loan. LTV ratio represents the percentage of the home's appraised value that is being borrowed. Generally, lenders offer more competitive interest rates to borrowers with lower LTV ratios. A lower LTV ratio implies that the borrower has more equity in their home, making them less likely to default on the loan.

Market conditions also play a role in determining home-equity loan interest rates. These rates are influenced by broader economic factors such as inflation, monetary policy, and overall demand for credit. When interest rates in the broader economy are low, home-equity loan rates tend to be more favorable. Conversely, during periods of high interest rates, borrowers may face higher rates on their home-equity loans.

It is important for borrowers to shop around and compare interest rates from different lenders before committing to a home-equity loan. Different lenders may offer varying rates based on their own risk assessment models and business strategies. Additionally, borrowers should consider the overall cost of the loan, including any fees or closing costs, in addition to the interest rate.

In conclusion, the typical interest rates associated with home-equity loans are influenced by factors such as the borrower's creditworthiness, loan-to-value ratio, and prevailing market conditions. These rates are generally higher than primary mortgage rates but lower than rates for unsecured loans. Borrowers should carefully consider these factors and shop around to ensure they secure the most favorable interest rate for their home-equity loan.

How does the loan-to-value ratio affect the availability of a home-equity loan?

The loan-to-value (LTV) ratio plays a crucial role in determining the availability of a home-equity loan. It is a key factor that lenders consider when assessing the risk associated with extending credit to borrowers. The LTV ratio is calculated by dividing the outstanding mortgage balance by the appraised value of the property, expressed as a percentage.

A higher LTV ratio indicates a greater risk for the lender, as it signifies that the borrower has a larger outstanding mortgage balance relative to the value of their home. Conversely, a lower LTV ratio suggests that the borrower has built up a significant amount of equity in their property.

Lenders typically have specific LTV requirements that borrowers must meet in order to qualify for a home-equity loan. These requirements can vary depending on the lender's risk appetite, prevailing market conditions, and regulatory guidelines. However, a common threshold is often set at 80% LTV.

When the LTV ratio exceeds the lender's specified threshold, it becomes increasingly challenging for borrowers to obtain a home-equity loan. This is because higher LTV ratios are associated with a higher risk of default. In such cases, lenders may perceive the borrower as having limited equity in their property, leaving little room for recourse in the event of foreclosure or other adverse circumstances.

Moreover, a higher LTV ratio may also result in higher interest rates and more stringent loan terms, as lenders seek to mitigate their risk exposure. This is because borrowers with higher LTV ratios are considered less creditworthy and may be more susceptible to financial difficulties.

On the other hand, borrowers with lower LTV ratios generally have an easier time accessing home-equity loans. A lower LTV ratio signifies that the borrower has a greater stake in their property and is less likely to default on their loan obligations. Consequently, lenders may be more willing to extend credit at favorable terms to these borrowers.

It is important to note that the availability of a home-equity loan is not solely determined by the LTV ratio. Lenders also consider other factors such as the borrower's credit score, income, employment history, and overall financial stability. These additional factors help lenders assess the borrower's ability to repay the loan and further influence the terms and conditions offered.

In summary, the loan-to-value ratio significantly impacts the availability of a home-equity loan. A higher LTV ratio increases the risk for lenders and makes it more challenging for borrowers to qualify for a loan. Conversely, a lower LTV ratio enhances the borrower's chances of obtaining a home-equity loan with favorable terms. It is crucial for borrowers to understand their LTV ratio and work towards building equity in their property to improve their eligibility for a home-equity loan.

Can a home-equity loan be used for purposes other than home improvements?

Yes, a home-equity loan can be used for purposes other than home improvements. While home improvements are a common reason for obtaining a home-equity loan, the flexibility of this type of loan allows borrowers to use the funds for a variety of purposes.

One of the primary advantages of a home-equity loan is that it provides homeowners with access to a large sum of money based on the equity they have built in their homes. Equity is the difference between the market value of a property and the outstanding balance on any mortgage or loan secured by that property. Homeowners can tap into this equity by taking out a home-equity loan, also known as a second mortgage.

Once approved for a home-equity loan, borrowers have the freedom to use the funds for any purpose they choose. Some common uses include debt consolidation, education expenses, medical bills, starting a business, or even purchasing a second property. The flexibility of a home-equity loan makes it an attractive option for individuals who need access to a significant amount of money and want to leverage the value of their home.

Using a home-equity loan for debt consolidation is a popular strategy. By consolidating high-interest debts such as credit card balances or personal loans into a single, lower-interest home-equity loan, borrowers can potentially save money on interest payments and simplify their finances. This approach can be particularly beneficial if the interest rate on the home-equity loan is lower than the rates on the existing debts.

Another common use for a home-equity loan is financing education expenses. With the rising costs of education, many individuals turn to their home equity to fund their own or their children's education. By using a home-equity loan, borrowers can secure a lump sum of money to cover tuition fees, textbooks, or other educational expenses. The interest rates on home-equity loans are often more favorable than those on student loans, making it an attractive option for some borrowers.

Medical bills can also be a significant financial burden for individuals and families. In cases where medical insurance coverage is insufficient or unavailable, a home-equity loan can provide the necessary funds to cover medical expenses. This can help alleviate the stress associated with unexpected medical costs and provide individuals with the means to access necessary healthcare.

Starting a business is another purpose for which homeowners may choose to use a home-equity loan. Entrepreneurs often require capital to launch or expand their businesses, and a home-equity loan can provide the necessary funds. By leveraging the equity in their homes, individuals can secure financing at potentially lower interest rates compared to traditional business loans.

Lastly, some homeowners may choose to use a home-equity loan to purchase a second property. This could be a vacation home, an investment property, or even a rental property. By using the equity in their primary residence, homeowners can obtain the funds needed for the down payment or to cover the entire purchase price of the second property.

In conclusion, while home improvements are a common reason for obtaining a home-equity loan, it is important to note that this type of loan can be used for various purposes. The flexibility and accessibility of home-equity loans make them an attractive option for borrowers looking to leverage the equity in their homes for purposes beyond home improvements. However, it is crucial for borrowers to carefully consider their financial situation and consult with a financial advisor before deciding to take out a home-equity loan for any purpose.

What are the tax implications of a home-equity loan?

The tax implications of a home-equity loan are an important consideration for homeowners seeking to tap into the equity in their homes. Home-equity loans, also known as second mortgages, allow homeowners to borrow against the value of their property. While these loans can provide a valuable source of funds for various purposes, it is crucial to understand the potential tax consequences associated with them.

One key aspect to consider is the deductibility of interest paid on a home-equity loan. Prior to the Tax Cuts and Jobs Act (TCJA) of 2017, homeowners could deduct the interest on home-equity loans up to $100,000, regardless of how the funds were used. This meant that whether the loan was used for home improvements, debt consolidation, education expenses, or any other purpose, the interest paid on the loan was generally tax-deductible.

However, the TCJA brought about significant changes to the deductibility of home-equity loan interest. Under the new law, starting from 2018 and until 2026, interest on home-equity loans is only deductible if the funds are used to "buy, build, or substantially improve" the taxpayer's home that secures the loan. This means that if the loan is used for purposes such as debt consolidation or personal expenses unrelated to the home, the interest is no longer tax-deductible.

It is important to note that the TCJA introduced a cap on the total amount of mortgage debt eligible for interest deduction. For loans taken out after December 15, 2017, taxpayers can deduct interest on mortgage debt up to $750,000 ($375,000 for married individuals filing separately). This includes both the original mortgage and any home-equity loans used for qualified purposes. For loans taken out before this date, the previous limit of $1 million ($500,000 for married individuals filing separately) still applies.

Another consideration regarding tax implications is the potential for capital gains taxes when selling a home that has had a home-equity loan. When a homeowner sells their primary residence, they may be eligible for a capital gains exclusion of up to $250,000 ($500,000 for married couples filing jointly) on the profit from the sale. However, if a home-equity loan was taken out and used for purposes other than improving the home, the amount of the loan may be considered as part of the cost basis of the property. This could potentially reduce the amount of capital gains eligible for exclusion, leading to higher tax liability upon the sale.

Additionally, it is worth mentioning that tax laws can vary between jurisdictions, and it is essential to consult with a tax professional or advisor to understand the specific implications in your area. They can provide personalized guidance based on your individual circumstances and help navigate the complexities of tax regulations.

In summary, the tax implications of a home-equity loan have changed under the TCJA. Interest on home-equity loans is now only deductible if the funds are used to buy, build, or substantially improve the home securing the loan. The total amount of mortgage debt eligible for interest deduction is also subject to a cap. Furthermore, when selling a home that has had a home-equity loan, there may be potential implications on capital gains taxes. It is crucial to seek professional advice to fully understand the tax consequences associated with home-equity loans and ensure compliance with applicable tax laws.

How does a home-equity line of credit (HELOC) differ from a traditional home-equity loan?

A home-equity line of credit (HELOC) and a traditional home-equity loan are both types of loans that allow homeowners to borrow against the equity in their homes. However, there are significant differences between the two in terms of structure, repayment, flexibility, and interest rates.

One key distinction between a HELOC and a traditional home-equity loan lies in the way funds are accessed. With a home-equity loan, borrowers receive a lump sum upfront and then make fixed monthly payments over a predetermined period of time. This loan functions similarly to a traditional mortgage, with a set repayment schedule and a fixed interest rate.

On the other hand, a HELOC operates more like a credit card. It provides homeowners with a revolving line of credit that they can draw from as needed, up to a predetermined limit. Borrowers can access funds through checks, credit cards, or electronic transfers, and they only pay interest on the amount they have borrowed. This flexibility allows homeowners to borrow and repay multiple times during the draw period, which typically lasts around 5 to 10 years.

Another significant difference between a HELOC and a traditional home-equity loan is the repayment structure. While a home-equity loan requires regular fixed payments of both principal and interest, a HELOC typically has two phases: the draw period and the repayment period. During the draw period, which is usually the first several years of the loan, borrowers are only required to make interest payments. Once the draw period ends, the repayment period begins, during which borrowers must start repaying both principal and interest.

The interest rates for HELOCs and traditional home-equity loans also differ. Home-equity loans usually have fixed interest rates, meaning the rate remains constant throughout the loan term. In contrast, HELOCs often have variable interest rates that are tied to an index, such as the prime rate. This means that the interest rate on a HELOC can fluctuate over time, potentially resulting in higher or lower monthly payments.

Furthermore, the interest paid on a home-equity loan is generally tax-deductible, up to certain limits, as it is considered mortgage interest. However, the tax deductibility of HELOC interest depends on how the funds are used. If the borrowed funds are used to improve the home, the interest may be tax-deductible. But if the funds are used for other purposes, such as debt consolidation or personal expenses, the interest may not be tax-deductible.

In summary, a home-equity line of credit (HELOC) differs from a traditional home-equity loan in several ways. A HELOC provides homeowners with a revolving line of credit that can be accessed as needed, while a home-equity loan offers a lump sum upfront. HELOCs have a draw period followed by a repayment period, whereas home-equity loans have fixed monthly payments throughout the loan term. Additionally, HELOCs often have variable interest rates, while home-equity loans typically have fixed rates. Understanding these distinctions can help homeowners choose the most suitable option based on their financial needs and goals.

What are the repayment terms and options for a home-equity loan?

Repayment terms and options for a home-equity loan can vary depending on the lender, loan amount, and borrower's creditworthiness. Generally, home-equity loans are structured as fixed-rate installment loans with a predetermined repayment period. Let's delve into the details of repayment terms and options for a home-equity loan.

1. Loan Amount and Term:
The loan amount for a home-equity loan is typically based on the difference between the current market value of the property and the outstanding mortgage balance. Lenders may have minimum and maximum loan amount requirements. The repayment term, also known as the loan term, is the duration over which the borrower must repay the loan. Home-equity loans often have terms ranging from 5 to 30 years, with 10 or 15 years being common.

2. Fixed Interest Rate:
Home-equity loans usually come with a fixed interest rate, meaning the interest rate remains constant throughout the loan term. This provides borrowers with predictable monthly payments, making it easier to budget and plan for repayment. The interest rate for a home-equity loan is typically higher than that of a primary mortgage but lower than other forms of consumer credit, such as credit cards or personal loans.

3. Monthly Payments:
Repayment of a home-equity loan is typically structured as equal monthly payments over the loan term. These payments consist of both principal and interest portions, allowing borrowers to gradually pay off the loan balance while covering interest charges. The specific amount of each payment depends on the loan amount, interest rate, and term. Lenders provide an amortization schedule that outlines the payment breakdown for each month over the loan term.

4. Lump-Sum Repayment:
Some borrowers may have the option to make a lump-sum repayment towards their home-equity loan principal, reducing the outstanding balance. This can be advantageous for those who come into a windfall or have excess funds available. By reducing the principal, borrowers can potentially save on interest charges and shorten the overall loan term.

5. Early Repayment:
Home-equity loans typically allow for early repayment without incurring prepayment penalties. This means borrowers can pay off the loan before the scheduled term ends, potentially saving on interest charges. However, it is essential to review the loan agreement or consult with the lender to ensure there are no specific restrictions or penalties associated with early repayment.

6. Refinancing or Renewal:
In some cases, borrowers may choose to refinance their home-equity loan or renew it at the end of the term. Refinancing involves replacing the existing loan with a new one, often to take advantage of lower interest rates or modify repayment terms. Renewal allows borrowers to extend the loan term if they are unable to repay the full amount by the end of the initial term. Both options provide flexibility but should be carefully considered based on individual financial circumstances.

It is crucial for borrowers to thoroughly understand the repayment terms and options associated with a home-equity loan before committing to one. Consulting with lenders, comparing offers, and seeking professional advice can help borrowers make informed decisions aligned with their financial goals and capabilities.

Are there any fees or closing costs associated with obtaining a home-equity loan?

Yes, there are fees and closing costs associated with obtaining a home-equity loan. When you apply for a home-equity loan, you will typically encounter various fees and expenses throughout the loan process. These costs can vary depending on the lender, loan amount, and your specific circumstances. It is important to understand these fees and costs to make an informed decision.

One of the primary fees associated with a home-equity loan is the application fee. This fee covers the cost of processing your loan application and can range from a few hundred dollars to several hundred dollars. It is typically non-refundable, even if your loan application is denied.

Another common fee is the appraisal fee. Before approving a home-equity loan, lenders require an appraisal to determine the current market value of your property. The appraisal fee covers the cost of hiring a professional appraiser to assess your home's value. This fee can range from a few hundred dollars to over a thousand dollars, depending on the size and complexity of the property.

In addition to the appraisal fee, you may also encounter other third-party fees, such as title search and title insurance fees. These fees are associated with verifying the ownership of the property and ensuring that there are no liens or legal issues that could affect your loan. Title search fees typically range from a few hundred dollars to around a thousand dollars, while title insurance fees can vary based on the loan amount and location.

Furthermore, there may be closing costs involved in obtaining a home-equity loan. Closing costs include various expenses related to finalizing the loan, such as attorney fees, document preparation fees, credit report fees, and recording fees. These costs can add up to a significant amount, typically ranging from 2% to 5% of the loan amount.

It is worth noting that some lenders may offer no-closing-cost home-equity loans. In these cases, the lender covers some or all of the closing costs, but the interest rate on the loan may be slightly higher to compensate for these expenses. It is essential to carefully evaluate the terms and conditions of such loans to determine if they are the right fit for your financial situation.

In conclusion, obtaining a home-equity loan involves various fees and closing costs. These expenses can include application fees, appraisal fees, title search and insurance fees, as well as closing costs. It is crucial to thoroughly review and understand these costs before proceeding with a home-equity loan to ensure that you are making an informed financial decision.

Can homeowners with low credit scores qualify for a home-equity loan?

Homeowners with low credit scores may face challenges when it comes to qualifying for a home-equity loan. A home-equity loan is a type of loan that allows homeowners to borrow against the equity they have built up in their property. The loan is secured by the value of the home, making it less risky for lenders. However, lenders typically consider credit scores as an important factor in determining loan eligibility.

Credit scores are numerical representations of an individual's creditworthiness and are based on various factors such as payment history, credit utilization, length of credit history, types of credit used, and new credit applications. Lenders use credit scores to assess the risk associated with lending money to borrowers. A low credit score indicates a higher risk of defaulting on loan payments.

While there is no specific credit score requirement for a home-equity loan, most lenders prefer borrowers with good to excellent credit scores. Typically, a credit score above 700 is considered good, and a score above 750 is considered excellent. However, some lenders may be willing to work with borrowers who have lower credit scores, albeit with certain limitations and conditions.

Homeowners with low credit scores may still have options to qualify for a home-equity loan. Here are a few potential avenues they can explore:

1. Seek out specialized lenders: Some lenders specialize in working with borrowers who have less-than-perfect credit. These lenders may have more flexible underwriting criteria and be willing to consider other factors beyond just credit scores when evaluating loan applications.

2. Provide additional collateral or assets: Homeowners with low credit scores may improve their chances of qualifying for a home-equity loan by offering additional collateral or assets to secure the loan. This could include other properties, vehicles, or valuable personal assets.

3. Find a co-signer: Having a co-signer with a strong credit history can enhance the borrower's chances of getting approved for a home-equity loan. The co-signer assumes responsibility for the loan if the primary borrower defaults, providing added security for the lender.

4. Demonstrate strong income and financial stability: Lenders may be more willing to overlook a low credit score if the borrower can demonstrate a stable income and financial situation. Providing proof of steady employment, a low debt-to-income ratio, and a history of responsible financial management can help strengthen the loan application.

5. Consider alternative loan options: If homeowners are unable to qualify for a traditional home-equity loan, they may explore alternative loan options such as a home equity line of credit (HELOC) or a cash-out refinance. These options may have different eligibility requirements and terms that could be more accommodating for borrowers with low credit scores.

It is important to note that while these options may increase the likelihood of qualifying for a home-equity loan with a low credit score, they may also come with higher interest rates or additional fees. Borrowers should carefully consider the terms and conditions of any loan offer and assess their ability to meet the repayment obligations before proceeding.

In conclusion, homeowners with low credit scores may face challenges in qualifying for a home-equity loan. However, by exploring specialized lenders, providing additional collateral or assets, finding a co-signer, demonstrating strong income and financial stability, or considering alternative loan options, homeowners may increase their chances of obtaining a home-equity loan despite their credit score limitations.

How does the current real estate market affect the availability and terms of home-equity loans?

The current real estate market plays a significant role in shaping the availability and terms of home-equity loans. Home-equity loans are financial products that allow homeowners to borrow against the equity they have built up in their property. As such, the value of the underlying real estate assets directly impacts the lenders' risk exposure and subsequently influences the availability and terms of these loans.

In a booming real estate market, where property values are rising steadily, lenders tend to be more willing to extend home-equity loans. This is because the increased value of the collateral provides a greater cushion for lenders in case of default. Higher property values also imply that borrowers have more equity in their homes, making them better positioned to qualify for larger loan amounts. Consequently, borrowers may find it easier to access home-equity loans during such periods.

Conversely, during a downturn or a stagnant real estate market, lenders become more cautious due to the increased risk associated with declining property values. In such situations, lenders may tighten their lending standards, making it more challenging for borrowers to qualify for home-equity loans. Lenders may require higher credit scores, lower loan-to-value ratios, and stricter income verification to mitigate their risk exposure. Additionally, lenders may reduce the maximum loan amounts available or increase interest rates to compensate for the heightened risk.

The overall health of the economy also influences the availability and terms of home-equity loans. During economic downturns or periods of uncertainty, lenders may become more conservative in their lending practices. This is because economic instability can lead to higher unemployment rates, decreased property values, and increased default risks. Lenders may respond by reducing the availability of home-equity loans or imposing stricter borrowing criteria to protect their interests.

Furthermore, regulatory changes and market conditions can impact the availability and terms of home-equity loans. For instance, after the 2008 financial crisis, there was a tightening of regulations surrounding mortgage lending. These changes, such as the Dodd-Frank Act, aimed to prevent risky lending practices that contributed to the crisis. As a result, lenders became more cautious and implemented stricter underwriting standards, affecting the availability and terms of home-equity loans.

In summary, the current real estate market exerts a significant influence on the availability and terms of home-equity loans. A booming market with increasing property values generally leads to easier access to these loans, while a downturn or stagnant market can result in tighter lending standards and reduced availability. Economic conditions, regulatory changes, and market dynamics also contribute to shaping the landscape of home-equity loans. It is crucial for borrowers to understand these factors and stay informed to make informed decisions regarding their home-equity borrowing needs.

What steps should homeowners take to determine if a home-equity loan is right for them?

To determine if a home-equity loan is right for homeowners, several important steps should be taken. These steps involve assessing financial needs, understanding the loan terms and conditions, evaluating the potential risks and benefits, and considering alternative options. By following these steps, homeowners can make an informed decision about whether a home-equity loan aligns with their specific circumstances and goals.

1. Assess Financial Needs: The first step is for homeowners to evaluate their financial situation and determine why they need the loan. Homeowners should consider their short-term and long-term financial goals, such as funding home improvements, consolidating high-interest debt, covering educational expenses, or addressing medical bills. By identifying their specific needs, homeowners can better understand if a home-equity loan is an appropriate solution.

2. Understand Loan Terms and Conditions: Homeowners should thoroughly review the terms and conditions of a home-equity loan before proceeding. They should pay close attention to the interest rate, repayment period, fees, and any potential penalties or restrictions associated with the loan. It is crucial to understand the difference between a home-equity loan and a home-equity line of credit (HELOC), as they have distinct features and repayment structures.

3. Evaluate Potential Risks and Benefits: Homeowners should carefully consider the risks and benefits associated with a home-equity loan. On the positive side, a home-equity loan often offers lower interest rates compared to other forms of borrowing, and the interest may be tax-deductible in certain situations. Additionally, homeowners can access a substantial amount of funds based on the equity in their property. However, it is essential to recognize that a home-equity loan uses the home as collateral, which means there is a risk of foreclosure if repayments are not made. Homeowners should assess their ability to make regular payments and consider the potential impact on their overall financial stability.

4. Consider Alternative Options: Before committing to a home-equity loan, homeowners should explore alternative options. They can investigate other types of loans, such as personal loans or HELOCs, to compare interest rates, repayment terms, and flexibility. Homeowners should also evaluate whether it is more advantageous to save money or adjust their budget to meet their financial needs without taking on additional debt. Exploring alternative options ensures that homeowners make an informed decision based on a comprehensive understanding of available choices.

5. Seek Professional Advice: Lastly, homeowners should consider consulting with a financial advisor or mortgage professional who specializes in home-equity loans. These experts can provide personalized guidance based on the homeowner's unique financial situation and goals. They can help homeowners understand the intricacies of home-equity loans, assess the potential risks and benefits, and determine if it aligns with their overall financial plan.

By following these steps, homeowners can make an informed decision about whether a home-equity loan is the right choice for them. It is crucial to carefully evaluate personal financial needs, understand loan terms and conditions, weigh potential risks and benefits, consider alternative options, and seek professional advice when necessary. This comprehensive approach ensures that homeowners make a well-informed decision that aligns with their financial goals and circumstances.

Are there any alternatives to a home-equity loan for accessing home equity?

Yes, there are several alternatives to a home-equity loan for accessing home equity. Home equity refers to the value of a homeowner's interest in their property, which can be used as collateral for borrowing funds. While home-equity loans are a popular option, there are other methods available that homeowners can consider based on their specific needs and financial circumstances. These alternatives include home equity lines of credit (HELOCs), cash-out refinancing, personal loans, and reverse mortgages.

1. Home Equity Line of Credit (HELOC): A HELOC is a revolving line of credit that allows homeowners to borrow against their home equity as needed. Similar to a credit card, homeowners can access funds up to a predetermined credit limit during a specified draw period. The interest rates on HELOCs are typically variable and tied to an index, such as the prime rate. HELOCs offer flexibility as homeowners can borrow and repay multiple times during the draw period, making them suitable for ongoing expenses or projects with uncertain costs.

2. Cash-Out Refinancing: Cash-out refinancing involves replacing an existing mortgage with a new one that has a higher loan amount, allowing homeowners to access the difference in cash. This option is suitable when interest rates are lower than the current mortgage rate or when homeowners want to change the terms of their mortgage. By refinancing, homeowners can tap into their home equity while potentially securing a lower interest rate on the new loan. However, it's important to consider closing costs and potential changes in monthly mortgage payments.

3. Personal Loans: Homeowners may also consider taking out a personal loan to access their home equity. Personal loans are unsecured loans that can be used for various purposes, including home improvements or debt consolidation. While personal loans typically have higher interest rates compared to home-equity loans, they do not require collateral and may have a faster application and approval process.

4. Reverse Mortgages: Reverse mortgages are specifically designed for homeowners aged 62 and older. They allow homeowners to convert a portion of their home equity into loan proceeds, which can be received as a lump sum, fixed monthly payments, or a line of credit. Unlike traditional mortgages, reverse mortgages do not require monthly repayments. Instead, the loan is repaid when the homeowner sells the property, moves out, or passes away. Reverse mortgages can provide a source of income for retirees or help cover healthcare expenses, but it's crucial to understand the associated costs and implications.

When considering alternatives to home-equity loans, homeowners should carefully evaluate their financial goals, repayment abilities, and the potential risks and benefits of each option. Consulting with a financial advisor or mortgage professional can provide valuable guidance in choosing the most suitable alternative for accessing home equity.

How can homeowners protect themselves from potential scams or predatory lending practices related to home-equity loans?

Homeowners can take several steps to protect themselves from potential scams or predatory lending practices related to home-equity loans. These practices can be detrimental to homeowners, leading to financial loss, foreclosure, or even the loss of their homes. By being aware of the warning signs and following some key guidelines, homeowners can safeguard themselves against such scams and predatory lending practices.

1. Educate Yourself: The first step in protecting yourself is to understand the basics of home-equity loans. Familiarize yourself with the terms, conditions, and requirements associated with these loans. This knowledge will enable you to identify any red flags or suspicious practices.

2. Research Lenders: Before engaging with any lender, thoroughly research their reputation and credentials. Look for reviews, ratings, and testimonials from other borrowers. Check if the lender is registered with the appropriate regulatory authorities and if they have any disciplinary actions or complaints against them.

3. Compare Multiple Offers: Obtain loan offers from multiple lenders and compare them carefully. Pay attention to interest rates, fees, repayment terms, and any hidden costs. Be cautious of lenders who pressure you into accepting an offer quickly or who offer significantly better terms than others without a valid reason.

4. Read and Understand All Documents: Carefully review all loan documents before signing anything. Ensure that you understand all terms, conditions, and obligations associated with the loan. If you have any doubts or concerns, seek legal advice before proceeding.

5. Beware of High-Pressure Tactics: Be cautious of lenders who use high-pressure tactics to push you into taking out a loan. Legitimate lenders will provide you with all the necessary information and give you time to make an informed decision. Avoid lenders who try to rush you or use scare tactics to convince you to sign up.

6. Avoid Unnecessary Services: Some lenders may try to sell additional services or products alongside the loan, such as insurance or credit protection plans. Be skeptical of such offers and carefully evaluate if they are necessary or if they add significant costs to the loan.

7. Be Wary of Equity Stripping: Predatory lenders may encourage homeowners to borrow more than they can afford, leading to a situation known as equity stripping. This practice can leave homeowners with little or no equity in their homes, making it difficult to refinance or sell in the future. Ensure that you only borrow what you genuinely need and can comfortably repay.

8. Seek Independent Advice: If you are unsure about any aspect of a home-equity loan, consider seeking advice from a trusted financial advisor or housing counselor. These professionals can provide unbiased guidance and help you make informed decisions.

9. Report Suspicious Activity: If you encounter any suspicious or predatory lending practices, report them to the appropriate regulatory authorities, such as the Consumer Financial Protection Bureau (CFPB) or your state's attorney general's office. Reporting such activities helps protect other homeowners from falling victim to scams.

10. Stay Informed: Keep yourself updated on the latest news and developments in the lending industry. By staying informed, you can identify emerging scams or fraudulent practices and take appropriate precautions.

By following these guidelines, homeowners can significantly reduce their vulnerability to scams or predatory lending practices related to home-equity loans. It is crucial to be vigilant, conduct thorough research, and seek professional advice when needed to ensure a secure borrowing experience.

What are the key considerations when comparing different lenders for a home-equity loan?

When comparing different lenders for a home-equity loan, there are several key considerations that borrowers should keep in mind. These considerations can help individuals make an informed decision and choose the lender that best suits their needs. The following factors should be carefully evaluated:

1. Interest Rates: One of the most important considerations when comparing lenders is the interest rate they offer. The interest rate will determine the cost of borrowing and can significantly impact the overall affordability of the loan. It is crucial to compare rates from multiple lenders to ensure you secure the most competitive rate available.

2. Loan Terms: Another crucial factor to consider is the loan terms offered by different lenders. This includes the length of the loan, repayment options, and any associated fees or penalties. Longer loan terms may result in lower monthly payments but can also increase the total interest paid over the life of the loan. Understanding the terms and conditions of each lender's offering is essential for making an informed decision.

3. Loan Amount and LTV Ratio: Lenders may have different maximum loan amounts and loan-to-value (LTV) ratios. The LTV ratio represents the percentage of a property's appraised value that can be borrowed against. It is important to understand the maximum loan amount you can qualify for and ensure it meets your financial needs. Additionally, a lower LTV ratio may result in better loan terms, so it is worth comparing lenders in this regard.

4. Fees and Closing Costs: Home-equity loans often come with various fees and closing costs, such as application fees, appraisal fees, origination fees, and closing agent fees. These costs can vary significantly between lenders, so it is crucial to compare them carefully. Be sure to consider both upfront costs and ongoing fees, such as annual maintenance fees or prepayment penalties.

5. Customer Service and Reputation: Evaluating a lender's customer service and reputation is essential for a smooth borrowing experience. Researching customer reviews, ratings, and testimonials can provide insights into the lender's reliability, responsiveness, and overall customer satisfaction. A lender with a strong reputation for excellent customer service may be more likely to address any concerns or issues that arise during the loan process.

6. Additional Benefits or Features: Some lenders may offer additional benefits or features that can enhance the borrowing experience. For example, certain lenders may provide flexible repayment options, the ability to access funds through a line of credit, or the option to convert a variable-rate loan to a fixed-rate loan. These additional features can add value and convenience, so it is worth considering them when comparing lenders.

7. Eligibility Requirements: Each lender may have specific eligibility criteria that borrowers must meet to qualify for a home-equity loan. These criteria can include credit score requirements, debt-to-income ratios, and minimum income thresholds. Understanding the eligibility requirements of different lenders can help borrowers assess their chances of approval and narrow down their options accordingly.

In conclusion, when comparing different lenders for a home-equity loan, borrowers should consider factors such as interest rates, loan terms, loan amount and LTV ratio, fees and closing costs, customer service and reputation, additional benefits or features, and eligibility requirements. By carefully evaluating these considerations, borrowers can make an informed decision and choose the lender that best aligns with their financial goals and circumstances.

Can a homeowner have multiple home-equity loans on the same property?

Yes, a homeowner can have multiple home-equity loans on the same property under certain circumstances. Home-equity loans, also known as second mortgages, allow homeowners to borrow against the equity they have built up in their property. These loans are typically secured by the value of the home and can be used for various purposes such as home improvements, debt consolidation, or other financial needs.

The ability to have multiple home-equity loans on the same property depends on several factors, including the homeowner's creditworthiness, the lender's policies, and the available equity in the property. Here are a few key points to consider:

1. Available Equity: The homeowner's equity in the property plays a crucial role in determining their eligibility for multiple home-equity loans. Equity is calculated by subtracting the outstanding mortgage balance from the current market value of the property. Lenders generally have limits on the loan-to-value ratio (LTV) they are willing to accept. For example, if a lender has an LTV limit of 80%, it means they will not provide a loan that exceeds 80% of the property's appraised value. Therefore, if a homeowner has already borrowed against a significant portion of their available equity, it may limit their ability to obtain additional home-equity loans.

2. Creditworthiness: Lenders assess a homeowner's creditworthiness when considering their eligibility for a home-equity loan. This evaluation includes factors such as credit score, income stability, debt-to-income ratio, and payment history. If a homeowner has a strong credit profile and meets the lender's requirements, they may be more likely to qualify for multiple home-equity loans.

3. Lender Policies: Each lender may have its own policies regarding multiple home-equity loans on the same property. Some lenders may allow homeowners to have multiple loans, while others may have restrictions in place. It is essential for homeowners to carefully review the terms and conditions of each lender to understand their policies regarding multiple home-equity loans.

4. Financial Considerations: Before considering multiple home-equity loans, homeowners should carefully evaluate their financial situation. Taking on additional debt can have implications on their overall financial health and ability to repay the loans. It is crucial to consider factors such as interest rates, repayment terms, and the purpose of the loans. Homeowners should assess whether multiple loans are necessary and if they can comfortably manage the additional financial obligations.

5. Risks and Benefits: Homeowners should be aware of the risks and benefits associated with having multiple home-equity loans. On the positive side, multiple loans can provide access to additional funds for various purposes. However, it is important to note that each loan will have its own terms, interest rates, and repayment schedules. Managing multiple loans simultaneously can be complex and may increase the financial burden on the homeowner. Additionally, in the event of a decline in property value or economic downturn, having multiple loans can expose the homeowner to higher risks.

In conclusion, while it is possible for a homeowner to have multiple home-equity loans on the same property, several factors need to be considered. These include available equity, creditworthiness, lender policies, and the homeowner's overall financial situation. It is crucial for homeowners to carefully evaluate their needs, risks, and benefits before deciding to pursue multiple home-equity loans. Seeking advice from financial professionals can also be beneficial in making informed decisions regarding home-equity borrowing.