Did you know that you can actually use your home equity to unlock some cash?
You don’t have to sell your home!
And you don’t have to take out any of those expensive personal loans.
Your Home Equity would be the difference between the current market value of your property and your mortgage balance. For instance, if the current market value of your home is $400,000 and you have a mortgage balance of $150,000, your home equity would be $250,000. You will be eligible to borrow this money through a home equity loan, a HELOC, or cash-out refinance.
A Home Equity Loan is like a second mortgage that you can take out, for a fixed amount. You will have to repay this over a specified period of time, just like you would pay your primary mortgage. However, the interest rate would be slightly higher than what you would normally pay for your primary mortgage.
Home Equity Line of Credit or HELOC
Although a HELOC is like taking out a second mortgage, it actually is more like taking a credit card. You borrow money only when you need it. Once you are done paying it off, you get to borrow again, depending on your requirement. The good news, however, is that the interest rate you would be paying would be much lower than what you would be paying for your credit card. Also, you are paying interest for only what you have borrowed during the draw period, the first five to ten years of the loan term, dedicated to withdrawing money. You will be repaying your loan during the remaining years.
A few more things you need to know about a HELOC are that there are no closing costs involved. The interest rate is adjustable and can change over the life of your loan.
Unlike the home equity loan and HELOC, Cash-out Refinance is not like taking out a second mortgage. You are replacing your primary mortgage with another loan for a larger amount. The difference is given to you, in cash, provided you have adequate home equity. A Cash-out refinance comes with high closing costs as it would be reducing the equity in your home. Also, you may not be able to borrow more than 80 to 85 percent of your available equity. Get in touch with a few lenders via mortgage leads and find out how much you can borrow.
So how do you figure out the best option?
The best way to tap your home equity depends mainly on what you are going to do with the money. The other factors for choosing include your financial situation and your credit score. Nevertheless, here are a few guidelines on what option to choose in certain standard situations:
· If you are in need of a lump-sum amount to pay for certain expenses or if you are consolidating your debts, a home equity loan might be beneficial. You get the entire amount at the outset and you can use it to pay for your medical or educational expenses or to clear another loan.
· In case you need to do home improvements or if you are looking at launching a new business, a HELOC may come in handy. You can tap into this resource whenever you need cash, without paying any closing costs.
· In case you are paying back your car loan or clearing your credit card account, a cash-out refinance might be a great option. You get the cash instantly and at an interest rate, which might be even better than that of your first mortgage.
The Bottom Line
Your home equity could be a great resource to tap into, whenever you are in need of some money. And the best part is that your home equity will keep on increasing automatically, without you having to do anything. Of course, you need to keep paying down your mortgage.