3 ways to access your home equity

Core Insights - Home equity represents the portion of a home that is owned outright, calculated by subtracting the outstanding mortgage balance from the market value of the home [2][3] - There are three primary methods to access home equity: home equity loans, home equity lines of credit (HELOCs), and cash-out refinances, each with distinct features and suitability for different financial needs [4][23] Home Equity Loan - A home equity loan allows homeowners to borrow between 75% and 85% of their home equity, disbursed as a lump sum [5][7] - Monthly payments are predictable due to fixed interest rates, making budgeting easier over the long term [9] - Ideal for those needing a large, one-time expense without refinancing their original mortgage [10] Home Equity Line of Credit (HELOC) - A HELOC provides a revolving line of credit, allowing access to up to 85% of home equity, with funds available as needed during a draw period [11][12] - Payments during the draw period may be interest-only, transitioning to principal and interest payments later [13] - Suitable for covering multiple large expenses over time while retaining the original mortgage terms [14] Cash-Out Refinance - A cash-out refinance replaces the existing mortgage with a larger one, allowing homeowners to access their equity [15][19] - Borrowing power is typically capped at 80% of the home's value, and the new mortgage may offer better terms [18][22] - This option is beneficial if the homeowner can secure a lower interest rate compared to their original mortgage [22][27] Additional Considerations - Home equity loans and HELOCs generally incur closing costs of 2% to 5% of the loan amount [8][17] - The amount of equity accessible depends on the lender, financial profile, and chosen mortgage type, with a typical borrowing limit of up to 80% of home equity [28]