College bills, credit card debt, home improvements, and purchasing investment properties are just a few of the reasons our clients tap the equity in their homes. Here are three ways to access the cash value in your home:
1. New first mortgage “cash-out” refinance
You can borrow up to 80% of the value of your home in a first mortgage cash-out refinance. Closing costs can be included in the mortgage, so no out of pocket money is required at closing.
For example, I recently helped a couple who had a 5/1 Adjustable Rate Mortgage AND who were in need of some cash for home improvements. They were able to lock in a 15 year fixed rate and received several thousand dollars after closing for home improvement purposes.
2. Add a home equity line of credit
Qualifying borrowers can obtain a home equity line of credit and borrow up to 90% of the value of their home minus any outstanding mortgage debt. A home equity line of credit is a second mortgage which works like a credit card. Borrow money on your home equity line this month, pay back over the next few months and repeat. The balance can fluctuate up and down as you tap into the line and then pay it back down again.
This loan type requires discipline on your part because no principle repayment is typically required for the first several years. You are required to make interest-only payments as a minimum payment. A home equity line of credit typically has an adjustable rate, so the interest rate and payments change over time.
3. Home equity loan
A home equity loan is a second mortgage which generally has a fixed rate – often paid back over 15 years. The proceeds from a home equity loan are paid out in a lump sum after closing. Borrowers pay principle and interest until the mortgage is paid off.
Depending on your situation, any of the options above may be right for you. Or, it may be best to sit tight for now without changing anything, paying off principle and shrinking the amount of interest you pay each month. Any changes should be based on optimizing long term gain and minimizing interest and costs paid to lenders. Feel free to give me a call to discuss your current situation.
If you are aware of anyone who will need a mortgage for purchase or refinance, please let me know or give them my contact information. I would welcome the opportunity to help with their finance needs.
Kent Cochrum, Senior Loan Originator
(630) 330-1334 mobile
(630) 634-5136 office
CIBM Mortgage, a division of CIBM Bank, member FDIC
330 S. Naperville Road, Wheaton, IL 60187