For many people, part of the appeal of owning a home, as opposed to renting, is that your payments go towards the equity of the home, meaning that instead of your money evaporating into rent checks, it gets tied up in the value of the property and the home. The more you pay, the more you own, and the more value you have. However, the money in your home isn’t money that you can utilize or spend right away, but there are a handful of ways you can access your home’s equity when you want to…
One of the most common ways that most people are able to gain access to their home’s equity is through a home equity line of credit loan, or a HELOC loan. HELOC loans are popular because of how flexible they are, since no specific amount has to be withdrawn from the home’s value. Instead, a homeowner can use the credit of the home like a credit card, and pay back into the value of the home with interest (unless paid back by a certain time). There usually aren’t a lot of additional costs to a HELOC loan, aside from interest, but there still may be closing costs, depending on the terms of the loan.
Home equity loans
A home equity loan is a classic example that everyone has heard of if you’ve ever heard about someone taking out a “second mortgage.” Home equity loans essentially create another mortgage that you need to pay off, with their own individual interest rates (which may be at a better rate than the first mortgage). However, this second mortgage allows you to draw a lump sum of value from your home in one draw.
Reverse mortgages are a great way to tap the equity of a home for incredibly favorable terms. However, the catch is that an individual must be 62 years old to access that equity. Reverse mortgages were made to allow older homeowners to use the equity in their home in their later years, but don’t put lenders at risk if the borrower passes away. Essentially, a reverse mortgage is like a home equity loan that you don’t need to pay back, so long as you still live in the same home. If the borrower passes away while living in the same home, then the lender can get their money back when the home sells.