A home equity loan lets you borrow against the value of your home based on the equity in your house (translation: the value of the property minus what you owe on your mortgage). So if you have a $500,000 home with a $300,000 mortgage, then you have $200,000 in equity.
To get a home equity loan, start by contacting the bank or lender responsible for your mortgage to ask how much you can borrow. Most loan packages will let you borrow up to the point where your total debt (read: the value of your mortgage plus the equity loan) reaches between 70 and 90 percent of the home’s current value, minus the remaining balance on the first mortgage.
Just as you did when you took out your first mortgage, be aware of all the costs involved with the loan. While home equity loans are generally less expensive than regular mortgages, you’ll still want to find out how much you’ll end up owing when you add up the fees and interest rates.
Once you are ready to apply for the loan, bring all the required paperwork, including your last tax return and proof of income with you.