Today, we are going to talk about a few different ways that you can tap into the equity of your home. And it’s something that is really common right now because so many people built up so much equity during the kind of crazy appreciation of homes that we’ve seen in the last couple years.
If you have any questions about anything equity or real estate related, reach out to us! We’d love to explain more in detail. This article will scratch the surface, but loans and equity are tricky to fully grasp, so we’re more than happy to help! Here’s Berry explaining the concept:
Cash Out Refinance
The first one we’re going to talk about is a cash out refinance. A cash out refinance is exactly what it says: you are tapping into the equity in your home, you’re taking some out, and you’re replacing your existing mortgage with a new one. This is usually really good if rates had dropped significantly and you have a lot of equity in your home. You can get a little bit of money out and still lower the interest rate on your primary mortgage. It is still a single loan, you are not making two payments, and you get the full amount as a lump sum and still pay it back up to about a 30 year loan, just like as if it was a traditional mortgage.
Home Equity Line of Credit
The second one is a HELOC or a Home Equity Line of Credit. Think of this one as your credit card option. It would not replace your first mortgage, instead it would become a second payment. The rates are going to be variable so it’s not fixed. But you can draw the funds as needed. You are not forced to take them all out as one big lump sum and typically the repayment period is 10-20 years.
Home Equity Loan
And the last one we’re going to talk about is a Home Equity Loan. Oftentimes, people are just going to lump these into the same category but they are a little bit different. It is indeed a second mortgage so it’s two payments, your primary and new mortgage. This is what is most commonly called as a second mortgage. When people say they’ve taken a second mortgage on something, this is generally what they mean. It has fixed interest rate and you must take the full amount upfront. And, again, typically the repayment period is only 10-20 years. So, not the full term of a normal mortgage that you are used to. This will be a higher payment probably, little more predictable because of the fixed interest rate.
Recap
Overall, all three of these are great products and great opportunities in the right scenario. Cash out is great if the rates went down and you have significant equity in your home. HELOC is great for unexpected expenses. It’s a way to tap in and use your home as a credit card for a much better rate than you’re gonna get on a credit card. Home equity loan, is most frequently for home improvements. In fact, with the home equity loan and HELOC, all of the interest is taxed up for as long as you are using it for home improvements. With the cash out, it’s fully taxed up regardless of what you use the money for. If you have a great lender, talk to them about these options. If you don’t, talk to us. We’d love to explain it in more detail and maybe recommend somebody!
