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Tapping Your Home's Equity

Source: http://boiserealestateinfo.net
Publish Date: 5/08/2009

Over years and years of paying your mortgage on time and as home values appreciate homeowners start building equity in their home. If you are uncertain of what equity means, it is the value of the home minus what you still owe on the house. If you are interested in taking advantage of the equity in your home for whatever reasons such as home improvement or your kids college tuition there are several options available to you.

Home Equity Loans

The “traditional” home equity loan is a one-time loan for a lump sum, typically at a fixed interest rate. The loan is paid back over a set period of time in equal monthly payments. Home equity loans are popular because unlike other bank loans the interest may be tax deductible and come with lower interest rates.

Home Equity Line of Credit

A home equity line of credit or HELOC works similarly to a credit card. You are allowed to borrow a certain amount of money against the equity in your home. As your equity goes up so does your line of credit. The interest rates typically vary which means it can go up or down over time. Things to remember when getting a HELOC is that you may get an introductory rate which will go up after a period of time. Make sure that you can afford the payment of the higher amount. Interest on home equity lines of credit may also be tax deductible.

Cash-out Refinancing

Another way to take advantage of the equity in your home is to do a cash-out refinance where you refinance your mortgage for more than you currently owe and pocket the difference. This option is different from a home equity loan because with a home equity loan you take out a separate loan on top of your mortgage; a cash-out refinance replaces your first mortgage. A good time to take advantage of a cash-out refinancing is when you can get a lower interest rate than you currently have now.

There are several ways to tap your home’s equity and depending on the market, interest rates, and your needs will likely have an effect on which option you choose. Talk to a lender to find the right option for you.

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