• What is Home Equity

Bank Resource Center

• Log in to Online Banking
• Sign Up for Online Banking
• About Nationwide Bank
• Tools & Calculators
• Learn About Banking

What Is Home Equity?

At Nationwide Bank^®, we understand home borrowing options can be overwhelming at times. Chances are, you might have a lot of questions about what home equity is.

By understanding the basics of home equity, you will be better prepared to make smart decisions about your financial future. Your home’s equity can help you access additional funds without tapping into your savings and other investments. 

Find answers with common home equity definitions

Home equity

Equity is typically defined as the difference between the appraised value of your home and how much of your mortgage you have left to pay off. Essentially, equity is the amount you have paid toward your home. To understand what home equity is, consider this example:

• The appraised value of your home is $150,000
• To date, you have made $20,000 in payments toward your mortgage, including your down payment
• The balance owed on your mortgage is $130,000
• Therefore, appraised value ($150,000) – balance owed ($130,000) = amount of equity ($20,000)

Over time, the value of your home may increase, which could change your equity amount. If you have made home improvements or your neighborhood schools improve, the value of your real estate may improve. Then your home could be appraised at a higher amount than what it was originally purchased for, which increases your equity. Should you experience this situation, you can use the same equity calculation – appraised value minus the amount you owe – to estimate your available equity amount.

Collateral

For a home equity loan or line of credit, your home is used as collateral to guarantee you will repay the loan. The bank reserves the right to collect on your collateral, and may sell or auction your home, should you default on your loan payments. The use of your home as a security interest is something you should consider when deciding if a home equity borrowing solution is right for you.

Draw period

For a home equity line of credit, the draw period is the amount of time you have to withdraw funds and make purchases using your account. You may access your line of credit through checks or credit card. Once the draw period has expired, you may no longer draw on your line.

Fixed interest

A home equity loan carries a fixed interest rate, in contrast to a variable interest rate with a home equity line of credit. This interest rate calculation is determined when you apply for the loan, and remains consistent throughout the life of the loan.

Home equity loan

Also known as a second mortgage loan, a home equity loan is a lump-sum loan that uses your home’s equity for cash. A home equity loan is secured with a fixed interest rate, and with a specific repayment period, so your monthly payments stay consistent.

Home equity line of credit

A home equity line of credit, or HELOC, is similar to a home equity loan in that you use your home’s equity to secure a credit line. It differs in that it is a revolving line of credit that continues as you make regular payments, rather than a lump-sum loan. Depending on the nature of your borrowing needs, having ongoing access to a HELOC may be a better loan solution for you.

Interest rates

The interest rate applied to your home equity loan or home equity line of credit , and represents the cost of borrowing money. The interest rate you receive is determined by a number of factors which may include how much debt you currently have, your income and your credit score.

Life of loan

The life of an equity loan is the time limit established by your lender that you have to use and repay your loan.  

Repayment period

The repayment period begins once the draw period for your home equity line of credit has expired, or once funds have been disbursed for your home equity loan. During this time, you must make your scheduled payments on your balance to pay off the loan. If you default on your payments, your lender reserves the right to to collect on your collateral- in this case, your home.  This is an important consideration to keep in mind when choosing your financing options.

You should now be more comfortable answering your question, “What is a home equity loan?” Start here to find out more about Nationwide Bank’s home equity solutions that can meet your needs.

Apply online now! Start your home equity loan or a home equity line of credit application and get the flexible options and attractive rates you deserve.