Smart Moves

Home equity is yours to use

Home equity is yours to use

Equity = the cash value of your house minus what you still owe.

With home values going up, what you have in this unique "bank account" could very well be more than you actually paid in monthly payments along with the down payment you paid up front to get into the home in the first place. And it's your money. So how do you get at it? Whether you need it for an emergency, another investment, kid's tuition, or whatever, your equity is yours and it can be converted into cash in your pocket.

There are three primary ways you can access your equity.  The first way to convert your equity to cash is to sell your home. You sell your home for an agreed upon price, pay off your mortgage, and pay any associated costs (like realtor commissions, etc.).  Once the home is sold, you get the cash difference over and above what you still owed on your mortgage at the time of closing.

The second way, you can access your equity is with a Home Equity Line of Credit, or HELOC.  This is just like a credit card tied to your home.  You use the equity as a line of credit. If you have 100K in equity, you can get a line of credit up to 100K and draw out the money as you need it.  When you do this, you only pay interest on the balance you owe, not on the credit line amount.  The payments are tied to an interest rate that changes monthly and recalculates the payment on the remaining balance owed on your home.  This is a great way to go if you do not need the money immediately, but want cash-on-hand in case of an emergency, unexpected expenses, or future plans/investments.

Finally, the third and most popular way to access your equity is a traditional "cash-out" refinance. This option allows you to take a percentage of your home's current value in the form of cash. A new mortgage pays off the existing mortgage, finances new closing costs and gives you a check for your desired amount.  This cash is yours to use however you want--pay off debt, buy a new car, provide college tuition, take a vacation, buy another home. Your cash, your choice.

The key to using your home equity successfully depends on working closely with a seasoned mortgage professional. Wise counsel will guide you through your options and ensure your plans and financial future are secure.
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