If you’re thinking of selling your home, you might be wondering how to finance your next move. Whether you’re buying a bigger house, downsizing, or relocating, you need to understand some key terms that will affect your home financing options. Here are the top 5 home financing terms you should know before you sell.
1. Equity: This is the difference between your home’s market value and the amount you owe on your mortgage. Equity can increase over time as you pay off your loan or as your home appreciates in value. You can use your equity to finance your next home purchase or to pay off other debts.
2. Refinance: This is when you replace your existing mortgage with a new one, usually with a lower interest rate or a shorter term. Refinancing can help you save money on interest, lower your monthly payments, or access some of your equity in cash.
3. Bridge loan: This is a short-term loan that allows you to buy a new home before you sell your current one. A bridge loan is secured by your existing home and is usually repaid when you sell it. Bridge loans can help you avoid a gap in financing or a contingency clause in your offer.
4. Home equity loan: This is a loan that lets you borrow against your equity in your home. A home equity loan is a lump-sum amount that you repay over a fixed term with a fixed interest rate. You can use a home equity loan for any purpose, such as home improvements, debt consolidation, or education expenses.
5. Home equity line of credit (HELOC): This is a revolving line of credit that lets you borrow against your equity in your home. A HELOC has a variable interest rate and a draw period, during which you can access funds as needed. You only pay interest on the amount you use, and you can repay and reuse your credit line as long as it’s open. You can use a HELOC for any purpose, such as emergency expenses, major purchases, or home renovations.
