Have you been dreaming of a certain home improvement project, but don’t think you have the money to do it? You may want to consider tapping into your home’s equity to finance the project. Borrowing money against your home’s equity is one of the most common ways to fund home improvement projects. The two most popular methods for turning your home’s equity into cash are the conventional cash-out refinance or Home Equity Line of Credit. Read on to know which is better for you.
1) Refinancing your existing mortgage into a new, larger mortgage. The difference between your existing mortgage balance and the new balance is paid out to you in a lump sum, effectively pulling the cash out of the home’s equity. This type of transaction is called a “cash-out refinance” and most often obtained with a Conventional Fixed Rate Mortgage.
2) Obtaining a Home Equity Line of Credit (HELOC) to borrow against the value of the home. A HELOC is a line of credit equal to a portion of your home’s equity, and is obtained as a second mortgage in addition to your existing mortgage, which is secured by your property. One of the biggest advantages of a HELOC is that you can access the funds as you need, and only pay interest on the amount you use. The interest rate on a HELOC is variable, and will typically change monthly as short-term interest rates move.
Both Conventional Fixed Rate Mortgages and HELOCs are readily available through most lenders, banks and credit unions.
Read more: The Loan vs The Line: Home Equity Loans