Homeowners in the United States with mortgages have recently seen the equity in their homes grow substantially: In the first quarter of 2024, home equity increased year over year by a total of more than $1.5 trillion since the first quarter of 2023, according to real estate data and analytics firm CoreLogic.

With all this extra 澳洲幸运5官方开奖结果体彩网:home equity, many homeowners have the option to unlock cash that they need—without having to sell their homes or take out expensive personal loans. Instead, they can tap into their equity through a 澳洲幸运5官方开奖结果体彩网:home equity loan, a 澳洲幸运5官方开奖结果体彩网:home equity line of credit (HELOC), or a 澳洲幸运5官方开奖结果体彩网:cash-out refinance.

Home Equity Loan

A home equity loan is a 澳洲幸运5官方开奖结果体彩网:second mortgage for a fixed amount that is repaid over a set period, such as 15 years. Home equity loans are 澳洲幸运5官方开奖结果体彩网:amortized at the beginning, and each payment is divided between interest and 澳洲幸运5官方开奖结果体彩网:principal (in the same manner as a primary mortgage). The loan cannot be drawn upon further once it is issued.

This type of home loan is the most structured, and it mirrors a primary mortgage. However, a home equity loan typically has a slightly higher 澳洲幸运5官方开奖结果体彩网:interest rate than a primary mortgage. That’s because the primary lender is the first to be repaid through sale proceeds if the home is 澳洲幸运5官方开奖结果体彩网:foreclosed—so the home equity lender has added risk.

Home Equity Line of Credit (HELOC)

A home equity line of credit (HELOC) provides the most flexibility. This type of loan is a second mortgage with a revolving balance: You borrow only what you need, pay it off, then borrow again. It works in the same manner as a credit card but with significantly lower interest rates. Your payment is based on the amount of credit that you use rather than the available loan amount. Most 澳洲幸运5官方开奖结果体彩网:lines of credit come with a checkbook or a debit card to provide easy access to funds.

Unlike the other two🐼 forms of secondary home loans, HELOCs usually come with no 澳洲幸运5官方开奖结果体彩网:closing costs. Also, HELOCs have adjustable rates that vary with the 澳洲幸运5官方开奖结果体彩网:prime rate, meaning that yo𝓡ur rate could rise or fall over the life of the loan. HELOC rates are often discounted at the beginning of the loan term and then increase after six to 12 months.

HELOCs are typically divided into two stages: the draw period and the repayment period. The 澳洲幸运5官方开奖结果体彩网:draw period is typically five to 10 years, during which time you can withdraw money up to your line of credit and make interest-only payments. During the 澳洲幸运5官方开奖结果体彩网:repayment period, the final amount that you’ve withdrawn becomes a loan to be repaid with interest, and within a specified time period (often 10 to 20 years). During this time, you can no longer draw against the account.

Cash-Out Refinance

澳洲幸运5官方开奖结果体彩网:Unlike the other two alternatives, cash-out refinancing does not necessarily involve a second loan. It is often used to provide additional funds to a homeowner. In this case, you 澳洲幸运5官方开奖结果体彩网:refinance your home for a larger amount, which allows you to take th🦩eღ difference in cash.

What Is the Best Way to Tap Home Equity?

The smartest strategy for accessing your home equity depends mostly on what you want to do with the money. Of course, your credit score and your financial situation matter, too. However, they will be factors regardless of whic𒊎h option you choose. These choices usually match with the situations and goals listed below.

For lump-sum expenses or debt consolidation

The main advantage of a home equity loan, or second mortgage, is that all of the 澳洲幸运5官方开奖结果体彩网:money is disbursed at the outset. Unsurprisingly, many borrowers who apply for a s𒁏econd mortgage have an immediate need for the entire balance.

These loans are often used to pay for educational expenses, medical fees, other lump-sum expenses, or 澳洲幸运5官方开奖结果体彩网:debt consolidation. The interest rates for second mortgages are usually much lower than for credit cards. For homebuyers who are interested in saving money through debt consolidation, a home equity loan can be a good option.

For home improvements or launching a business

A HELOC is a good fit for homeowners who nee𒆙d access to cash periodically over a span of time. These expenses are usually incurred on an ongoing basis. A HELOC can be used for a series of home improvements, for example, or for launching a small business.

HELOCs are generally the cheapest type of loan because you pay interest only on what you actually borrow.🦹 There are also no closing costs. You just have to be sure that you can repay the entireꦗ balance by the time that the repayment period expires.

During the coronavirus pandemic, most banks have still been offering these loans, but some raised their requirements for credit scores and 澳洲幸运5官方开奖结果体彩网:loan-to-value (LTV) ratios. In addition, Wells Fargo and JPMorgan Chase instituted freezes on applications for new HELOCs, which remain in place as of May 2022. (The freezes don’t affect those who already have HELOCs.)

To pay off car loans or credit cards

A cash-out refinance can be a good idea if your home has gone up in value. It is often the best option if you need cash right away and you also qualify to get a better interest rate than on your 澳洲幸运5官方开奖结果体彩网:first mortgage.

If your credit score is much higher than when you purchased your home, then a lower rate can help offset the higher payment that will come with a lar🐷ger balance that includes the cash-out amount. If you use the cash-out amount to pay off other debts, such as car loans or credit cards, then your overall cash flow may improve. Your credit score may even rise enough to warrant another refinance in the future.

The Bottom Line

Many homeowners believe that selling their house is the easiest and most convenient way to get a needed cash influx. Even homeowners who own other types of assets may find this strategy appealing if they want to avoid selling taxable holdings that would trigger capital gains taxes or withdrawal penalties on early 澳洲幸运5官方开奖结果体彩网:iꩲndividual retirement account (IRA) or retirement plan distributions. 🅰However, accessing your home equity can be a smart way to borrow—without having to sell your home, take out expensive personal loans, or rack up credit card debt.

Home equity debt is not a good way to fund recreational expenses or routine monthly bills. However, it can be a real lifesaver for anyone saddled with unexpected financial challenges. Home equity debt can also be a good way to invest in the future. The key is to make sure that you borrow at the lowest possible interest ra🍷te—and keep in mind that borrowers who do not repay these loans can lose their homes in foreclosure.