- There are three main ways to take advantage of your home equity: selling your home, doing a cash-out refinance, or taking out a home equity line of credit (HELOC).
- A cash-out refinance allows you to borrow money against the equity in your home and receive the money in a lump sum.
- A HELOC is a revolving line of credit that allows you to borrow money against the equity in your home as needed.
If you’ve been paying any attention to the housing market, you know home prices have skyrocketed.
That means if you own a home, you’ve likely built a lot of equity.
What’s home equity?
Equity is determined by subtracting the amount you owe on your home from the value.
Let’s put that into numbers for you. Say you purchased a home for $200,000 and still owe $180,000 on your mortgage. If the home appraises for $260,000, you now have $80,000 in equity.
Appraised Value - Outstanding Loan Amount = Equity
$260,000 - $180,000 = $80,000
How can I take advantage of my home’s equity?1
Whether you want to stay in your home or are thinking about selling, you can take advantage of your increased home value.
Option 1: Sell Your Property
If you decide to put your home on the market, your list price will reflect the equity you’ve gained. You do need to keep in mind that selling a home does come at a cost (even if you opt not to hire a real estate agent to list the property for you).
Factor in closing costs, real estate agent commission, repairs, recording fees, and attorney fees when making your decision.
A seller net sheet can be a really helpful tool as you’re considering your options. Ask your real estate agent to provide an estimate of the amount of money you’ll net from your home sale based on your unique circumstance.
Option 2: Do a Cash-Out Refinance2
When you choose a cash-out refinance, you replace your current home loan with a new mortgage for more than you owe on your home. At closing, you receive the difference in cash.
Using our previous example, if your home is valued at $260,000 and you owe $180,000, doing a cash-out refinance means you’d be able to use a portion of that $80,000 in equity for things like a home renovation, college tuition, or paying off high interest debt, like credit cards.
It is important to keep in mind that a new mortgage will come with closing costs and a new rate that will affect your monthly mortgage payment. Make sure you talk to one of our expert mortgage loan originators to understand exactly how opting for a cash-out refinance will affect you.
Option 3: Home Equity Line of Credit
A home equity line of credit (or HELOC) lets you use the value of your home to get the money you need for larger – or unexpected – expenses. A HELOC works kind of like a credit card. You have a revolving source of funds that you can draw from and then repay during a specified period of time. The benefit of a HELOC over a credit card is that the interest rate tends to be lower.
A HELOC might be a good fit for you if you’re looking for a way to borrow money at a low interest rate and repay the amount quickly.
Option 4: Home Equity Loan
A home equity loan also allows you to borrow against your home’s equity, but pays out the full amount upfront. It’s a fixed rate loan that lets you pay back your balance over time. With rates continuing to rise, a HELoan gives you the opportunity to lock in an interest rate that won’t change through the life of your loan.
A home equity loan might be a good fit for you if you’re looking to borrow a large sum of money and pay it off over a period of time longer than one to two years.
Which option is right for you?
That all depends on your unique financial situation. Your best bet is to set up a complimentary loan review with one of our mortgage experts. Together you’ll review your financial goals and figure out the best way to take advantage of your home equity. To start that conversation, call 1-800-914-8224 or send us a message.
1Not all borrowers will qualify. This is not a commitment to lend. Restrictions apply. Benefits listed may not apply to every borrower.
2Informational only; consult tax, legal and/or accounting advisors before engaging in any transaction.