06/07/2023
Home equity is the difference between how much you owe on your mortgage and how much your home is worth. Home equity builds as you pay down your mortgage and/or the value of your home increases.
When you sell a home in which you have equity, a chunk will go towards closing costs, and the rest will be yours to keep.
But selling your home isn't the only way to tap into your equity!
Home equity can be leveraged in many ways, such as taking out a home equity loan or doing a cash-out refinance to finance home improvements, consolidate debt, or cover other expenses.
Here are three of the most common ways to get equity out of your home without selling:
1. Cash-out refinance
A cash-out refinance replaces your existing home loan with a larger mortgage loan (by using the bigger loan to pay off your old one). The difference between the balance on your previous mortgage and your new mortgage amount is how you'll be able to access home equity and essentially "cash out".
2. Home equity line of credit
A HELOC (short for a home equity line of credit) is a way to borrow against the available equity in your home whenever you want (up to a set limit) while making low payments. With a HELOC, you use your house as collateral for the line of credit. Similar to a credit card, a HELOC allows you to borrow against your home equity, repay, and repeat. A HELOC typically allows up to 10 years to withdraw funds and up to 20 years to repay.
3. Home equity loan
A home equity loan is a type of mortgage that allows you to borrow money using the equity in your home as collateral. With a home equity loan, you'll get access to a lump sum of money all at once and will repay the home equity loan (with principal and interest) each month at a fixed rate over 5-30 years. Keep in mind, a home equity loan is considered a second mortgage, so you'll have to make monthly payments for your home equity loan in addition to paying your current mortgage each month.
Alyssia Vaughn
346-289-4931
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