Turn Your Rising Home Equity Into Cash You Can Use
If you own a house and are considering major renovations, need to cover unanticipated expenses like replacing a faulty furnace, or want to pay off high-cost debt, tapping into your home’s equity might be a good option.
There are three main ways for unlocking your equity – a cash-out refinancing loan, home equity line of credit, or home equity loan.
Tapping into your home's equity
“Tapping into your home equity is a decision you shouldn’t take lightly because you are increasing your debt and reducing the equity in your home. That’s why I recommend customers consider using their equity for purposes that will improve their financial situation or increase their home’s value,” says Jacki Foley, Vice-President and Home Equity Line of Credit Loan Officer with First National Bank.
Foley said, “It’s easy to be tempted to use the funds when you are cash-strapped or want to take a luxury vacation, but those decisions may not be good in the long-term."
With a cash-out refinancing loan, you refinance your primary mortgage by taking out a new loan for more than what you currently owe, then pocket the difference in cash. Say your house is worth $300,000, and you currently owe $200,000 on your mortgage. This gives you $100,000 in home equity. You can typically borrow 80 percent of your home’s value. You would receive a check at closing, less the loan processing fees. To qualify, lenders look at your debt-to-income ratio – how much you owe each month in obligations, like credit card payments or mortgage loans, divided by your monthly income.
Home Equity Line of Credit
With a home equity line of credit, or HELOC, you have a source of funds that acts a lot like a credit card. You can take multiple loans over the term of the loan or “draw period.” You can even use your First National Bank debit card to get easy access to the money. If you only need $10,000 to $20,000, a HELOC might make more sense. You can typically borrow 90 percent of your home’s value, minus what you owe. After the draw period, any outstanding balance (principal and interest) must be paid back. The interest rate for a HELOC is typically variable and higher than a cash-out refi. Closing costs also apply.
Home Equity Loan
A home equity loan is a second mortgage. You borrow against the value of your home and receive a lump-sum of money upfront, which you begin repaying with interest immediately. You can borrow up to 90 percent of your home’s appraised value, minus what you owe. There are also closing fees. If you’re seeking a fixed interest rate and know exactly what you need to borrow, a home equity loan could be a great option.
Speak to a Trusted Mortgage Lender
First National Banks’ mortgage lenders and HELOC loan officers can help you weigh the pros and cons of each of these home equity loan options, and assist you with applying for the loan type that will best meets your needs. There is no charge for a loan consultation.
- home equity line of credit
- home equity loan
- mortgage refinancing