For many homeowners, building equity is one of the long-term benefits of owning a home. As you make mortgage payments and your home’s value changes over time, the amount of equity you have may change as well.
Understanding how home equity works can help you better understand your home’s overall financial picture and the options that may be available to you.
What Is Home Equity?
Home equity is generally the difference between your home’s current market value and the amount you still owe on your mortgage.
As you make payments toward your mortgage balance, you may build equity in your home. Changes in your home’s market value can also affect the amount of equity you have.
Equity isn’t the same as cash in a bank account, but there are financial options that may allow you to access some of it if you qualify.
How Can Home Equity Be Used?
Homeowners may consider accessing their equity for a variety of financial needs. This could include making home improvements, addressing major expenses or other personal financial goals.
The way you access your equity can depend on your circumstances, how much equity you have and the type of financing you qualify for.
Cash-Out Refinancing as an Option
A cash-out refinance is one potential way to access home equity.
With a cash-out refinance, your existing mortgage is replaced with a new mortgage. If you qualify, you may be able to borrow more than the amount you currently owe, with the difference provided as cash, subject to applicable costs and loan requirements.
Because you’re replacing your existing mortgage, it’s important to consider the new loan’s terms, costs, repayment period and potential effect on your monthly payment.
Other Ways to Access Equity
A cash-out refinance isn’t the only option. Depending on your circumstances, you may also be able to consider a home equity loan or home equity line of credit (HELOC).
These options can have different structures, costs and repayment terms. Comparing the available choices can help you understand how each one may fit into your financial situation.
Consider Your Options
Your home equity may give you options as your financial needs change. Whether you’re considering a home improvement project, a major expense or simply want to better understand what you’ve built in your home, it can be helpful to know what choices may be available.
Want to learn more about your home equity options? Contact a loan officer today to explore what may be available for your situation.
