When you bought your home a few years back, you probably figured you’d be working to pay down your mortgage for at least fifteen years. But what most people don’t realize is that their home is worth way more now than it was when they bought it.
There are right and wrong ways to access your home’s equity.
It all depends on your financial goals. Check out the most common scenarios:
Are you planning a big home renovation, but don’t know the exact cost? Do you need additional funding for a purchase, like education? If you need flexible funding, consider a home equity loan.
Home equity loans provide flexible ways to get cash for your financial needs.
Pulling out a lump sum is helpful if you are sure you know the full amount of cash you would like to access. Some people access their home equity to pay for their kid’s college tuition, consolidate higher interest debt, or have other high fixed costs. You have two options for accessing a lump sum from your home equity; a home equity loan or a cash out refinance.
A home equity loan has low, fixed interest rates because the loan is secured to your home value. The caveat to home equity loans is that they are usually only offered to consumers that have excellent credit (700+).
What if your credit score isn’t excellent? No worries, you can access your home equity through a cash-out refinance. With a cash-out refinance, you refinance your mortgage for more than what you owe, and keep the difference (that’s the cash out part). This is a great option considering most homes are rising in value.