What is home equity and how can I use it?
Home equity could be a powerful resource for homeowners looking for extra funds to help with any expenses they may have.
If you are a homeowner, you may have heard about home equity, but what is home equity and how can you use it? Learn how you can tap into the value of your home for funds to help cover a variety of costs.
If you are ready to start tapping into your home equity, begin a cash-out refinance, home equity loan or HELOC application today.
What is home equity?
Home equity is the percentage of your home that you own outright, or the difference between your home’s current value and remaining mortgage balance.
If you have a mortgage, you technically own only a percentage of your house. Your home equity reflects that percentage. If you don’t have any home loans, you own your entire home, and you will have full equity in your property.
Home equity builds over time, and most homeowners have some home equity, whether they realize it or not.
Home equity can be tapped into for expenses that you are planning or that come up unexpectedly.
How to calculate your home equity
You will need to know your remaining mortgage balance and your home’s current value in order to calculate your home equity.
When you have those, your home equity is calculated by subtracting your remaining mortgage balance from your home’s current value. The number you get is the value of home equity you have. To find out the percentage, take that number and divide it by your current home value and multiply the number you get by 100.
If you do not have a remaining mortgage balance or any home loans, you own full equity in your home.
Best ways to use home equity
Home equity can be accessed for a number of expenses you may have. While these are some of the best or popular ways borrowers have used their home equity, the best way for other borrowers may not be the same best way for you to use your home equity.
The best way you can use your home equity is whichever way is most helpful for your situation.
Renovations
One popular choice for home equity is home renovations. Some home improvements, renovations, repairs or remodels can raise your home’s value, which could increase your home equity. Your home equity can help you cover the cost of most if not all of your planned home projects.
Some planned home renovations have a higher return on investment, meaning that they could increase your home’s value more than others.
Consolidating high-interest debt
If you have any high-interest debts, you could consolidate them with your home equity.
Consolidating debt under a HELOC, which tends to have lower interest rates than other second loan types, is a great way to use your home equity. Some of the debts that may have higher interest rates than a HELOC are credit card debts, personal loans or even some student loans.
Consolidating your debt under a loan with lower interest rates, like a HELOC, could save you on interest payments during the life of your loan.
Depending on your loan amount, you might be able to use your home equity to consolidate multiple high-interest debts at once. Consolidating multiple debts this way could reduce the number of payments you will have to make monthly.
Make an investment
If you are looking for funds to invest in your own plans or other ideas, one way borrowers use home equity for investment is to make a down payment on an investment property.
Investment properties are not for personal use but are meant to be rented out or sold for a profit as the value increases. These properties are not primary residencies and are bought with the goal of generating cash flow.
Emergency funding
Unfortunately, not all expenses can be planned for. If there are ever any unplanned or emergency expenses that pop up in your life, your home equity is available to help.
Car repairs, medical visits or home repairs can be hard to predict. If any of these happen and you don’t want to tap into your savings or don’t have the funds saved to pay for these expenses, your home equity could cover or ease those costs.
Best ways to access home equity
There are several ways in which you could start accessing your home equity.
HELOC
A HELOC, or home equity line of credit, typically opens a credit line based on the home equity you have. HELOCs work similar to credit cards, where you can tap into your home equity as you need it.
For the first part of your HELOC, you can draw what you need while only making interest payments on the amount you have borrowed. After your draw period, you will have to pay back your loan principal and interest without the ability to make any more draws on your line of credit.
A HELOC is a great way to tap into your home equity if you have any rolling expenses, as you can keep drawing funds you need.
Home equity loan
Home equity loans offer borrowers a one-time lump-sum amount based on their home equity. A home equity loan is a great choice for any homeowner who will need a larger amount to cover any bigger expenses they may have.
These loans do not offer any additional draws. Similar to your original home mortgage, repayment on both loan principal and interest starts shortly after your loan begins.
Cash-out refinance
A cash-out refinance works by replacing your current mortgage with one that has new terms and loan amount that matches your current home’s value.
Unlike HELOCs or home equity loans, which are second mortgages, cash-out refinances will replace your first mortgage if you have one, while tapping into your home equity.
You will only need to make one monthly home loan payment instead of the multiple ones you may have to with other options.
How to start tapping into your home equity?
You can start tapping into your home equity by finding out which loan option is best for you and start your application.
To figure out which loan option would be best for your situation before applying, look at how you will access the funds and consider how your repayment is structured. During your application, you will be connected with a professional Loan Officer who can answer any questions you may have about your loan or the application process.
Begin tapping into your home equity by starting your cash-out refinance, home equity loan or HELOC application today!
Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply.
All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. OriginPoint does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error-free. Some information in the publication may have been provided by third parties and has not necessarily been verified by OriginPoint. OriginPoint its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.
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Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Restrictions may apply, contact OriginPoint for current rates and for more information. All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. OriginPoint LLC fka Guaranteed Rate Affinity, LLC does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by OriginPoint LLC fka Guaranteed Rate Affinity, LLC. OriginPoint LLC fka Guaranteed Rate Affinity, LLC its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action. OriginPoint does not provide tax advice. Please contact your tax adviser for any tax related questions.
