What can you do with a hundred grand?
Would that mean a dream vacation… Paying off that credit card debt… Giving that drab kitchen a long, overdue lift?
Good news is: you might be sitting on a home equity “cash cow” and not even realize it.
The sad part is most homeowners don’t realize the leverage they have. In fact, there’s $5.4 Trillion in unclaimed home equity according to the latest Mortgage Monitor Report.
In the next few paragraphs you’re going to learn 3 ways to tap into your home equity cash cow. Let’s take a look at the pros and cons of each…
1. Get cash for your equity
Cash-out refinance might be a great option if you need a large chunk of cash – fast.
The way it works is you’d basically be getting a new mortgage – along with cash. How much cash? Usually up to 80% of your home value. For example, let’s say your house is worth $100,000. You may receive up to $80,000 cash. Of course, the better your credit score, the more cash you could qualify for.
Cash-out refinancing has always been a popular choice with homeowners. The most common reasons are:
- Get lower interest rate
- Lower your monthly payment (while getting cash)
- Home improvement (Remodeling your kitchen, adding a deck, etc.)
- Pay off credit card debt
- Pay college tuition
- Pay for life’s emergencies
- Start a business
Pros
- Receive large sum of money
- Lock in a lower interest rate
- New terms may reduce your monthly payments
- Stable interest rate – Your interest rate is locked and will never rise during the life of your loan.
- Predicable payments – Never worry about your mortgage payment suddenly increasing
- Tax deductible interest if cash goes towards home improvement (Puts extra money back into your pocket)
Cons
- Higher closing costs
2. Get a line of credit for your equity
The Home Equity Line of Credit (HELOC) is perfect if you need some extra spending money.
A HELOC is like a credit card. You can tap into it whenever you choose. You’re charged only when you use it. It comes in handy because you don’t need to draw a lump sum of money all at once.
Pros
- Pay as you go — You’re charged only when you use it
- Option to pay interest only – You can pay off your loan as quickly or as slowly as you want
- Low closing costs
- May not have to pay for appraisal (If you’re borrowing less than 80% of your home value)
- Low interest rate compared to credit cards
- Tax deductible interest if credit goes towards home improvement (Puts extra money back into your pocket)
Cons
- Won’t lower your current interest rate
- Won’t reduce your monthly payments
- Variable interest rate (Rates might rise during loan term)
With HELOC you’re not replacing your current mortgage like with the cash-out refinance. However, the cash-out refinance is a better option if you’re looking to lower your interest rate. It all really depends on your situation.
3. Get cash for your equity (Option #2)
A home equity loan is a kind of hybrid between cash-out refinance and HELOC.
The way HEL works is you borrow a lump sum of money (like cash-out refinance) without replacing your current mortgage (like HELOC).
This is a great option if you’re happy with your current mortgage and interest rate. You want to keep your current mortgage and you need a large sum of money now.
Pros
- Receive large sum of money
- Low closing costs
- Low interest rate compared to credit cards
- Locked-in fixed interest rate (Will never rise during your loan term)
- Predictable payments – Never worry about your mortgage payment suddenly increasing
- Tax deductible interest if cash goes towards home improvement (Puts extra money back into your pocket)
Cons
- Won’t lower your current interest rate
- Won’t reduce your monthly payments
By now you might be wondering:
Which one is right for me?
All three methods to tap home equity have their benefits and their drawbacks. Without knowing your specific needs I can’t say which one is right for you.
Generally, there’s no one-size-fits-all solution. It’s important that you get the right loan for your unique situation. That way you’re able to get the most reward for your equity at the best rate possible.
There’s $5.4 trillion in tappable home equity up for grabs. Don’t miss out on your opportunity to secure your share.
With the extra money leftover you might want to go on a shopping spree …or take that vacation you’ve been thinking about.
Get a Free Refinance Analysis and find out what options are available to you.