How to Tap Into Your Home Equity
Do you have equity in your home? Having equity means that your home is worth more than the dollar amount of your mortgage and any other liens that may exist on the property. For example, if the appraised value of your home is $250,000 and you have a first mortgage on the property with a balance of $150,000 and a home equity loan on the property with a balance of $25,000 – your equity in the property is $75,000 (calculated as follows: $250,000 – $150,000 – $25,000 = $75,000).
Real estate equity is certainly valuable, but it’s not liquid. When assets are not liquid, it means that you cannot convert them into cash on a moment’s notice.
If you would like to tap into your home’s equity, but you don’t want to sell your home outright, you have several options. Three of the most common are 1) a Home Equity Loan, 2) a Home Equity Line of Credit, and 3) a Cash-Out Refinance.
Home Equity Loan
A home equity loan is considered a second mortgage. When you apply for a home equity loan, you are requesting a loan that has a specific dollar value. The loan is paid to you in a lump sum, and usually with an interest rate that is fixed. You must repay your home equity loan in equal monthly installments over the course of many years – usually a 15-year term.
Home Equity Line of Credit
A home equity line of credit (“HELOC”) is slightly different from a home equity loan, but it is still considered a second mortgage. One of the biggest differences is that a HELOC usually involves an adjustable interest rate. Also, with a HELOC, you are not given a lump sum of money at the beginning. Instead, you are able to draw on a line of credit for a specific duration of time. Once that period of time expires, additional money cannot be drawn out of the account – even if you did not take as much as you could have. The repayment period on a HELOC usually lasts anywhere from 5 to 15 years, but is specific to each individual account.
Cash-Out Refinance
When you opt for a cash-out refinance, you are basically refinancing your existing mortgage with a new one. When you refinance, you can opt for a larger mortgage than your old/original mortgage, and then you can take the extra amount as cash. For example, if your current mortgage has a balance of $150,000, and you want $50,000 in cash, you can refinance into a $200,000 mortgage.
When it comes to tapping into your home equity, there are many options. Call The Home Loan Arranger today at 1-877-938-7501 to get help determining the best possible choice for your unique situation.
