Accessing your home equity gets a bit of a bad rap. If you hear a phrase along the lines of, “So, I took out a second mortgage on my house,”it is typically perceived as an indication of dire financial straits. This, for one, is not always the case.
This ignores all of the ways to access home equity outside of taking out a second mortgage. By using the value of your home to access loans, or a credit line, you can open up more financial opportunity for yourself. Let us take a look at the variety of different options available when it comes to accessing your home equity.
Conventional Home Equity Loan
A home equity loan is the most traditional option that is typically associated with using your home equity to access more funds. It is often referred to as a second mortgage. This is another mortgage which is accessible only when the market value of your home exceeds the remaining payments on your first mortgage. They are given at a fixed interest rate with a fixed agreed upon amount available and distributed as a lump sum.
This type can be a smart choice if you have high interest debts that you want to pay off. The reason behind that is the interest rate on a second mortgage is both fixed and is typically significantly lower than you would see on something like a credit card payment.
A home equity line of credit (HELOC) is just what it sounds like: a determined line of credit available to you by using your home as equity. HELOC can be a little bit riskier compared to a conventional, lump sum loan. This is because it has fluctuating interest rates much like a credit card. However, this risk does come with a lot more flexibility. A HELOC allows you to draw whatever amount you choose within the line of credit. Keep in mind a higher interest rate is very possible.
Essentially, a cash-out refinancing option means taking out a second loan or “refinancing” your mortgage. This loan is a larger loan that will help aid you in paying off your mortgage. The purpose is usually to pay off the remainder of your mortgage and pocket the leftover money for other expenses. Sometimes these can be used to avoid PMI. Just be mindful of this option's closing costs tend to be rather high.
If you are looking to take advantage of one of these lending perks, HRCCU offers borrowing plans on up to 95% of your homes appraised value with no closing costs! We offer both fixed and adjustable rates and varying lengths depending on the kind of loan it is that you are looking for. If you’re considering using your home as equity, but aren’t sure if you can afford it, feel free to check out some of our tips. Better yet, come visit us at any of our branch locations. We’re here to work with you to figure out a financial agreement that will work with your budget!