Download Acrobat Reader 5.0 or higher to view .pdf files.
featured
Father and son playing fetch with the dog

How To Tap Into Your Home Equity: Options and Strategies

Unlock your home equity with options like credit union home equity loans, HELOCs, and cash-out refinancing. Discover strategies to meet your financial goals.

Tap into your home’s equity and unlock the power of financial freedom. Why delay funding your financial goals when you can start achieving them now? When you tap into your home’s equity, you can gain access to cash when you need it. Using the equity built up in your home, you can improve your financial situation, cover large expenses, fund significant life goals, consolidate debt, and more.

In this article, we’ll examine the top strategies homeowners can use to borrow against their home equity. Learn which options are available through credit unions and how you can employ different strategies for different financial goals. Which method you choose largely depends on your specific financial goals and needs. Use credit union home equity loans to achieve the full potential of your dreams.

Home Equity Loan

A home equity loan is a second mortgage on your home. It’s structured similarly to a primary mortgage and is great for borrowers who have a specific amount of money they want to borrow as a lump sum. The money is typically borrowed at a fixed interest rate (though, some lenders offer adjustable-rate options) with the loan payments spread out over a fixed period of time. Though you receive the loan in one lump sum, you repay it in monthly installments for the set term. Terms vary, but you can typically choose term lengths from as few as 3 years to as many as 15 years.

How much you can borrow depends on the current market value of your home and how much equity you have. Once you borrow the amount, you cannot draw more without a new loan.

Credit union home equity loans vary from lender to lender, so make sure to shop around for a loan that supports your financial lifestyle. Compare interest rates and term lengths to choose the right lender for your goals. Keep in mind that your home is collateral for the loan, so make sure the loan terms don’t put you at risk of defaulting on the loan.

Home equity loans are ideal for making a large one-time purchase. Maybe you’re looking to upgrade your home by installing solar panels on your roof and have a specific quote. Borrow that exact amount as one lump sum and then make repayments each month until the loan is paid off. If you need to make periodic purchases over an extended period of time, this may not be the best option. You may instead prefer a home equity line of credit.

Home Equity Line of Credit

A home equity line of credit (HELOC) provides more flexibility. Homeowners can use this second mortgage option to borrow up to an approved amount as often or as little as they like. Rather than receiving one lump sum, borrowers can access their equity much like they would a credit card. Borrow what you need at the moment, pay it off, then borrow again as needed.

When comparing a HELOC to other loan options, it’s important to consider how the interest rate and other fees work. HELOCs tend to offer lower interest rates than credit cards or personal loans. Money is also borrowed at a variable rate, meaning your interest rate could rise or fall depending on the prime rate. 

They also have a preset draw period, usually up to 10 years, in which you can withdraw money up to your credit limit. After this period, you cannot borrow further, and you must repay what you’ve borrowed, plus interest. However, you only pay interest on the amount of credit used, not the total amount available. The repayment period usually lasts 20 years.

HELOCs work well for borrowers who want to make ongoing purchases over a period of time. If you need to make smaller or periodic purchases or you don’t know the full amount of an expense, such as a home renovation, a HELOC may be the best fit for your goals.

Cash-Out Refinance

A cash-out refinance differs from the former loan options in that it is not a second mortgage on your home. Instead, it’s a new mortgage. Tap into your home equity by replacing your original mortgage with a new, larger mortgage, and keep the difference in cash.

Since cash-out refinancing replaces your current mortgage with a new one, it will come with a new set of loan terms as well as the associated fees of buying a house. You will have to factor in closing costs and how a larger loan increases your debt and affects your monthly budget.

If interest rates have gone down or your credit score has improved since you initially took out your mortgage, you could benefit from a cash-out refi. This option may also be ideal if your home has increased in value or you need cash immediately. If mortgage rates have risen, you may prefer one of the other strategies.

Choosing the Best Option

The option you choose largely depends on how you plan to use your equity. Think about your financial situation and your goals, then select the strategy that gets you there faster without breaking the bank.

For a large lump sum or debt consolidation, it may be prudent to opt for a home equity loan. You’ll receive all your money up front and can use it to consolidate debt or cover medical, educational, or other singular expenses, such as a wedding, dream vacation, or new vehicle.

If your aim is to make home improvements or start a business, a HELOC gives you the flexibility to access cash for ongoing expenses. A HELOC can also be a lifeline when emergencies arise. Pay for unexpected expenses without taking out a higher-interest personal loan or credit card debt.

If your primary goal is to pay off existing debt, a cash-out refi may be the best strategy. Use the cash-out amount to pay down credit card debt or car loans at a lower interest rate and improve your cash flow.

No matter your financial needs or goals, the loan experts at Capital Credit Union are ready to help make your dreams come true. Let’s get started in finding the best loan option that works for you!



Go Back to All Posts