One of the many benefits of owning a home is that over time, your investment is likely to increase in value. When you buy a home, there are multiple factors when it comes to equity –even from the moment you begin to make your monthly mortgage payments. In doing so, for example, the principal owed on your home begins to decrease with each payment. As the amount you owe shrinks, your equity typically increases.
Also, the economy may increase the value of your home. This is an outside factor for which homeowners have no control. There can, of course, can be a positive, negative or neutral influences on the home’s value.
If you paid a large down payment, that too will affect how much home you own versus how much you owe. When you decide to borrow against your home, banks consider your home’s fair market value and subtract the outstanding balance and any liens to determine the home’s equity.
As you can see, there are multiple ways to increase your home’s equity. Similarly, there are multiple ways to take advantage of it.
Here’s how to tap into your home’s equity.
Homeowners can refinance or rework their current mortgage to get cash back. At a fixed rate, they can rest assured that rates and payments will remain the same. If rates are lower than what was initially thought when the refinance phase began, then homeowners can finance again.
An adjustable rate may allow for an even lower rate for a specific amount of time. In other words, payments will be less for a specific duration. This is perfect for homeowners who have short-term financial goals.
Home Equity Line of Credit
Most homeowners may have heard of HELOC, or a home equity line of credit. This allows them to draw and pay interest on an amount of their choosing. In basic terms, this means the homeowner can parse equity in order to not pull it out all at once. When making payments on a HELOC, homeowners only have to focus on the interest, which, in turn, allows for some flexibility in terms of what it is taken out.
Home Equity Loan
This is a one-time loan with a fixed rate. Payments are set with a specific amount of time. This could be used for home renovations, repairs or debt payments. This loan can be pulled out in one large sum.
So, as you can see, a cash-out refinance can do a variety of things. For more information on how to get started with a cash-out refinance, make sure to contact us!