3 Ways to Tap Into Your Home Equity
Are you in a position where you would like to tap into your home equity? It could be for financing purposes or for debt consolidation, etc. 2020 saw a lot of homeowners tapping into their home equity.
Are you tempted to tap into your home equity in 2021? Before you make this kind of financial decision, consider the following information to understand 3 ways you can make it happen:
A HELOC
A home equity line of credit (HELOC) works much like how you would pay off a credit card. It’s essentially a second mortgage that has an interest rate. This rate will change with the prime rate. There are various time periods for paying off a HELOC, which is typically around 30 years, with two lending stages.
The first lending stage is to pay interest on what is lent, and the second stage is when the actual payment time begins. A HELOC allows a borrower to only borrow flexibility in using only what they need but it’s not as easy to budget as other options. Keep in mind that not all reverse mortgage lenders Michigan and some other states offer this option.
Cash-out refinancing
Many people will use this option when they need an immediate cash-out for a timely investment. Essentially, cash-out refinancing is used to get a larger loan than what is currently owed on a home mortgage, so that the borrower can use the difference for what they need. This option is ideal for those who have already paid off a large amount of their original mortgage, as it will allow them to get a higher cash amount. Whether you want to down-size to a smaller home or you need extra money to budget with your partner, cash out refinancing could help.
Home equity loans
A bit more popular than HELOCs, home equity loans are second mortgage loans, designed to be repaid over a specific period of time, that can range anywhere from five to thirty years. It’s a similar process to what you may have gone through with your first mortgage. You may expect a slightly higher rate than your first mortgage as well, so keep this in mind. A benefit that some people find in tapping into this kind of home equity is the fact that they can get a single lump-sum payment of a substantial amount, which may be one reason why many people resorted to this option last year when many needed to find financing in some way during the many layoffs and job furloughs that happened due to COVID-19. This option is also often used for remodeling or fixing up homes.
Consider the options
What cash equity option is best for you? It depends. In some cases, you may not be eligible for a HELOC or at times a home equity loan could be best for your current situation. It’s important to shop around and find the best loan terms that fit your life and budget.
Interest rates are extremely important to pay attention to as you look for the best way to tap into your home equity. Keep in mind that there will be many closing costs involved, from credit report fees to home appraisal fees and so much more.
Don’t forget that research is paramount in this case, as you need to know if the process is worth it to get what you need. Understanding how much you owe and how much you own on your home can help you determine the pros and cons. Whether you want to remodel your basement or need a loan for something else, you’ll need to see if the rates and effort will be worth it.
Low closing costs and great rates with convenient terms are all things to look for tapping into your home equity. There are some options out there that cut the fees for applications, appraisals, etc., during the process, so take your time to look for a lender that offers deals that help you avoid paying too much to get the money you need.