For most people, your home is your greatest asset. Not only is it your place of residence and your family’s gathering place, it is also a great source of equity that appreciates in value over time. But sometimes, you may need the value in your home to become cash that you can use in the short term. Perhaps you need cash for your business, beyond what you could get from a secured or unsecured business loan. Or perhaps you’re looking to renovate your home, whether it be for personal enjoyment or eventual plans to sell.In any case, your home can be an excellent source of cash for you and your family; and, with home prices around the world increasing, it may be for more cash than you even realize.
Accessing your home’s value can be tricky, but even when you aren’t looking to sell immediately, there are still ways to get cash from your home. Here are three easy ways to leverage your home to get the cash you need:
In a cash-out refinance, the borrower receives a new mortgage to replace their old one. This new mortgage will be larger, but the difference between it and the borrower’s old mortgage will be paid out in cash. This is an excellent option if you need a large sum of cash immediately and will be able to pay it off over a longer period of time.
Cash-out refinancing also prevents the need for a second loan on your home, providing simplicity for the borrower.It is worth noting that this type of refinance can leave you with less equity in your home than you had prior to the refinance, which introduces added risk for your lender. However, because of its speed and simplicity, a cash-out refinance can be a good option, especially if your home has already gone up in value recently or if your credit score is significantly higher than when you took out your original mortgage.
Home Equity Fixed-Rate Loan (or Second Mortgage)
A home equity loan is effectively a second mortgage on your home. It works by providing a lump sum to the borrower, which is then repaid over a set period at an agreed-upon interest rate. Home equity loans differ from cash-out refinances in that they are a separate loan entirely, which helps retain the equity within the home.
Home equity loans are common because they are easy to apply for and come with fixed interest rates, meaning if you wait for the right time, you can get a very favorable payment plan for the long haul. You can expect the interest rates on these loans to be slightly higher than on your primary mortgage, however, because the secondary lender is also the second to be repaid in the event of foreclosure; therefore, the secondary lender has additional risk involved. These interest rates should still be much better than a credit card, however. Home equity loans can be a great option for you if you need a large sum now, for example to pay off and consolidate your debts.
Home Equity Line of Credit (HELOC)
A HELOC is a great option for those who do not need a huge lump sum immediately. HELOCs pay out slowly over time, providing funds (and incurring interest payments) only as the borrower needs, providing attractive flexibility for many borrowers. HELOCs are often used to improve your home, meaning that over time they will increase its equity, helping to pay itself back in the long run.
HELOCs can be long-term or short-term depending on your needs, and are generally split into two sections: the draw period, when you can access the funds at will, and the repayment period, when you no longer have access but are still on the hook for payments. If you are considering applying for a HELOC, remember that the interest rate you will be borrowing at will vary over time, meaning that you would do well to pay attention to the interest rate climate before you make the move to access your money.
There are some niche options as well for certain people. If you are 62 and older, for example, you might consider a reverse mortgage, which allows seniors to access a portion of their home equity without payment until the home is no longer the borrower’s primary residence.
All these options provide excellent avenues to get cash from your home while still keeping it in the family. Whether you need a large sum immediately or a series of smaller infusions of cash, there are options available to homeowners that can provide them with the cash you need.
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