A mortgage can do much more than help you buy a home. If you keep up with it well for a number of years, you build up equity: a source of liquid money you can access should the need or want arise. Equity is a simple math concept that goes like this.

Lets say you took out a loan for a $300,000 home. Youve worked hard for years and have reduced the loans balance to $100,000. This means that $200,000 of that home is now yours. That $200,000 is your equity, the amount of money that, were you to sell the house, would be yours.

But you dont need to sell your house to access your equity. Equity can be made liquid through a number of different means. The most popular are the cash-out refinance, equity loans or second mortgages, and home equity lines of credit. They all have their benefits and downsides, and specific instances of usefulness.

The cash-out refinance is a simple matter of taking out a new loan to pay off the existing loan plus some cash on top. Using our previous numbers it would work like this. You bought the home for $300,000 and now you owe $100,000. If you take out a new loan on the home for the amount of your equity ($200,000) you can pay off the remainder of the first loan and have $100,000 left over to do with what you wish. Keep in mind that turning your equity liquid involves taking out another loan, which must be repaid.

The home equity loan is another way to turn those assets liquid. Lenders will usually make loans up to 80% of the value of a home, so with the $300,000 home you have, you can get $240,000. Pay off the first loans $100,000 balance and you have $140,000 left to your discretion.

Your third option is the home equity line of credit. Depending on your credit history, you can get a very high percent of a homes value in financing. Lets say you have great credit and you get 90% financing on that $300,000 home. That equals $270,000. After you pay off your first loan of $100,000, you have $170,000 left over.

Keep in mind that there are wise and unwise uses of your equity. If you fail to pay it off, there is a lien on your property so you could lose your house.

Equity is a good way to pay for a number of the large expenses in life. College tuition, cars, and second honeymoons are popular and wise uses for equity funds. That helicopter landing pad youve always wanted on your roof is not a wise use of your equity. Neither are flashy cars or anything that would normally be outside of your means and wont give you a good return. College degrees, for instance, are good investments because they help you or your children to make more money, producing a good return on your investment.

Equity can help you do a lot of things you may need or want to do, but equity is a responsibility just like any loan. When considering liquefying your equity it is vital to consider all the factors.

About the Author

For more information about Equity and Mortgages, please visit www.ccitymortgage.com

Debbie Dragon is a freelance writer who specializes in writing quality content that is both informative and keyword optimized for SEO, and sales copy. For more information, contact debbiep@mhcable.com

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