Homebase Mortgages

Smart Ways to Tap Your Home Equity

Homeowners know that they do not need to sell their home these days to access some cash. There are ways to access home equity without passing ownership of the property via home equity loans and some can be very easy and convenient compared to other options. However, just because home equity is available doesn’t mean that one can simply withdraw money and use it for anything. Note that when you tap your home equity, you are borrowing against the value that you own in your home. This means that not paying can result in losing one’s home plus facing possible penalties and interest. So, what are smart ways to tap your home equity?

There are 3 Popular ways to access home equity via a secondary loan. They are as follows.

Second Mortgage

Typically referred to as home-equity loans, second mortgages are as structured as primary mortgages. The key difference is that a second mortgage is not the most prioritized loan in case of a default, and that the interest rate is higher than that of a primary mortgage. Second mortgages are often amortized and have a set term for payment such as 10 years or 15 years. The payment is set up like a primary mortgage in the sense that it is divided into interest and principal. Once used, they cannot be drawn upon again.

Home Equity Line of Credit or HELOC

Currently very popular, a HELOC is the most flexible type of secondary home loan and can be approved without any funds needing to be released. This loan allows a homeowner access to a line of credit whenever the homeowner may need it and comes with revolving credit, almost like having a credit card with a very high credit limit. Most HELOCs come with a debit card or a checkbook for easy access to funds. Borrowers only need to pay interest on the actual amount that has been drawn and do not come with closing costs. A HELOC is typically not for those who are not very financially savvy because it is easy to get by with paying only interest and then ending up with too much borrowed amount after some time. The convenience of accessing funds with a HELOC can be a problem for those who cannot limit their spending.

Cash-Out Mortgage Refinance

This option is often used by people who want additional funds or those who want to avoid primary mortgage insurance. This works by refinancing the home for a larger amount and then withdrawing or cashing out the difference in cash. This loan often comes with a high closing cost.

What is the Best Way to Access Home Equity?

Because of their pros and cons, each one of the ways of tapping home equity discussed above can be a smart choice for anyone depending on very specific situations. The key is to make sure that you consult a mortgage professional and be honest with yourself regarding your needs and financial capabilities to avoid making decisions that won’t be good long-term.

Using home equity to have access to funds is a smart way to have cash without selling one’s home and while avoiding high-interest from other loans. Contact us at Homebase Mortgages if you need some assistance to decide which home equity loan is best for your needs.


Homebase Mortgages