Accessing Your Home Equity
How do you get the equity out of your home?
There are several ways you can access your home equity:
Sell your home
You can sell your home outright and get the money from the sale. After the sale, you should be able to pay off the mortgage and have extra cash in hand. This is an option for homes that have increased dramatically over the years, for example, if you bought your home during a down market and sold later in a hot market. Selling your home also allows you to pay a larger deposit for a new home, which would lower your payment terms.
Selling your home is an option should you need to move location for a job or into a smaller house after the kids have flown out the nest. Bear in mind that moving out doesn’t have to be about a great distance, simply moving from the city to its outskirts can have a huge impact on house prices and monthly expenses.
Home equity loans (HEL)
Home equity loans use the equity in your home as security for a loan. Home equity loans will pay out a lump sum to you and you will pay off the debt, usually as a fixed rate mortgage.
The interest on home equity loans is relatively low because it is secured by your home. Home equity loans are good for funding big-ticket expenditures like buying a car. Home equity loans are also good for consolidation of debt, it allows you to group all your high-interest credit (cars, credit cards etc) and pay it off with a lower interest rate loan. Over the long run, you will make savings on the payments
Home equity line of credit (HELOC)
A Home equity line of credit gives you access to a revolving credit fund. You may tap into the fund as many times as you like as long as you stay within the credit limit. The loan comes with a checkbook or credit card that you can use through the lifespan of the HELOC.
Home equity loans are good for consolidating debt but also for large expenses that come at you in stages like tuition and renovations. This allows you to pay interest on only what you use, rather than the entire credit available.
Cash Out Refinance
A cash-out refinance loan pays off your original mortgage and pays out your remaining home equity as cash. For example, if your home is valued at $350,000 and your mortgage is $250,000. A cash-out refinance will take out a larger loan than the mortgage, say $300,000 and pay out the difference in cash of $50,000 ($350,000-$300,000).
You may use the cash out payment for anything you choose, but considering that the loan is secured by your home it is advised you make wise financial decisions. You may use the cash to pay off credit card debt or make house improvements.