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Home equity can play a major role in improving our financial situation. But do you know what it is exactly? Simply put, this is how much of the house that you own. Specifically, it is the estimated value of the house after the outstanding mortgage is removed from the equation. This is all well and good, but you are probably wondering how this can actually help you. It could be of great help if you are in the process of repaying a mortgage. Find out why.

Knowing your home equity and understanding how it plays into your life is important because it acts as a secret safety net for your well being. A bad financial situation might make you feel that there is no way out. At such times one may feel a dreaded sense of hopelessness. If things continue to get worse you can easily default on your mortgage and lose everything that you worked so hard to get. At such a time, knowledge of home equity would help.

It acts as your safety net by providing a solid source of collateral that is always growing in the background. You can make your equity rise regularly by regularly making repayments. Each dollar you spend on improving your house should hopefully increase the equity as well, if you know what you're doing. In the end, you should have a decent amount of equity built up to take a second mortgage on your house in a time of extreme debt.

If you are looking for an equity loan, you will have two options. The standard loan just gives you a lump sum of money with the amount based on how much equity you currently have. You then have a second set of payment to make, but the money you have should hopefully let you turn things around and start new. The other form is a home equity line of credit (HELOC), where your equity would simply stand as collateral for future borrowing. This really is a great option for people needing the money.

You can borrow against the balance that you have and the interest rate will shift according to the market conditions. HELOC provides an answer to the prayers of those who are facing tough times monetarily. But even here, one must be careful about the financial troubles that could crop up.

As you can see, your home equity is a very important aspect to your financial life. It just stands for how much you have paid towards your home and how much the value has increased in the face of the housing market. You should also view it as a little source of pride. For many, home equity is the visible result of one's investment efforts. It is how much you have tangibly gained.

You won't officially own the house for a long time, but you own a part of it. As a result, you should take care to regularly pay off your mortgage so that it keeps increasing. The equity can serve as funding for any loan that you may need during a rough time so that you can pull yourself out of debt. If things come to such a stand that your house is at stake, don't be afraid to use the home equity.

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