Home equity is calculated by subtracting your current mortgage debt from your home’s current value. Over time, the outstanding principal balance on a mortgage decreases as you make regular payments. At the same time, your home’s value may have increased substantially. You may be able to tap into your home’s equity through several financing options, and you may use the money for home improvements, debt reduction or any other goals that you have in mind.
The first option for tapping into your home’s equity is to refinance your current first lien. With this option, you are replacing your original loan’s terms with the terms of a new loan. If mortgage rates have increased since your original loan application, this may not be a favorable option.
Another option is to apply for a HELOC, or a home equity line of credit. This is a line of credit that is secured by your home as a second lien. Your first mortgage remains untouched. One of the more advantageous features of a HELOC is that you can withdraw as much equity as you need to at different times. This is opposed to getting a lump sum of cash at closing from the other possible financing options.
The final financing possibility available is a home equity loan. This is a second mortgage, so your first lien mortgage remains untouched. Because you will receive a lump sum of cash at closing, a home equity loan is a smart option if you need access to a large amount of money at one time and if you do not want to refinance your first lien.
Are you ready to get serious about accessing your home’s equity? At MortgageDepot, we can answer your questions about these options and help you to explore the specific loan or line of credit terms that are available to you. Reach out to our lending team today for assistance.
Contact one of our loan consultants to learn more.