Right now, Americans are collectively sitting on trillions of dollars of home equity due to increasing home prices in the past few years.
If you need cash fast to fund a project or pay for a large expense or emergency, you can use your home equity.
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However, this precious equity is locked up in your home, so you’re going to need a method of tapping into it.
Home equity loans are the most popular option today for homeowners to access their equity without disturbing their current mortgage.
If you are interested in tapping into your home equity, Compass Mortgage can help. Read on to learn more about the equity in your home and how to access it with a home equity loan.
What is home equity?
As you’ve been making your monthly mortgage payments on your home, you have been building up equity.
Your home equity amount is equal to the difference between what you owe on your mortgage and the home’s current market value.
For example, if you have a $300,000 home and a $250,000 mortgage balance, you have $50,000 in equity.
There are two ways to build home equity:
- Making your monthly mortgage payments (and making them on time)
- Watching for home value increases
Higher home prices in the past few years have significantly increased the amount of equity available to homeowners.
If you purchased a $200,000 home in 2017, for example, it’s likely worth more today.
You can determine your home’s value by looking at the sales prices of similar homes in your neighborhood, but the only way to know for sure is by getting an appraisal.
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How do I access my homes equity?
Homeowners can access their home equity in one of two ways:
- Cash-out refinance
- Home equity loans
Let’s take a quick look at each option to help you determine the most more favorable choice for your situation.
Cash-out refinance
A cash-out refinance requires homeowners to replace their current mortgage with a new, larger loan based on their available equity. The difference between the two loans is paid to the homeowner in cash.
The problem with a refinance in today’s market is that the homeowner must give up their current interest rate in exchange for today’s rates.
If you refinanced during the period of record-low interest rates a couple of years ago, it’s probably not in your best interest to give up that very attractive precious rate.
The alternative is a home equity loan.
Home equity loans
The most popular option today is a home equity loan because, unlike a cash-out refinance, you won’t have to sacrifice your current interest rate. In fact, you won’t have to touch your current mortgage at all.
There are two types of home equity loans, a fixed-rate home equity loan (HEL) and a home equity line of credit (HELOC).
Unlike a HELOC which typically has a variable interest rate, HELs provide a fixed interest rate that remains the same throughout the life of the loan. Upon closing, the borrower receives a lump sum that is paid back in fixed installments over a set term.
Most borrowers today find that an HEL is an ideal option for accessing their home equity because it’s a separate loan with predictable payments.
What can I do with my home equity?
You can use your home equity funds in whatever ways you choose.
The most common uses for a home equity loan include:
- Home renovations
- Business expenses
- Investments
- Emergency expenses
- Large purchases
- Student loans
- Debt consolidation
Putting your home equity back into your home with renovations or upgrades is among the most popular uses for the funds because you have the potential to boost your home value.
Another popular use is to consolidate debt. HELs generally have lower rates than other types of loans; so they can be helpful for paying off all your outstanding debts in exchange for one consistent, fixed-rate payment amount.
New or seasoned investors alike will use home equity loans to put a down payment on an investment property, and some borrowers will choose to use the funds for emergency medical expenses or a new car purchase.
Why should I get a HEL instead of a personal loan or credit card?
Personal loans and credit cards often have higher interest rates than home equity loans, and the rates are subject to current market fluctuations.
Home equity loans are considered easier to qualify for than personal loans, and they have lower rates because they use your home as collateral.
How to get a home equity loan
If you’re interested in getting a home equity loan, you will have to find an experienced lender who offers this type of loan and apply.
Compass Mortgage offers home equity loans to our borrowers. To find out more about the requirements for an HEL, get in touch with a Compass Mortgage loan officer.
Once you’re fully approved and close on the loan, you receive the funds quickly. Generally, you can receive them by check or transferring the funds to your bank account.
You will start making payments on the home equity loan right away, on a fixed payment schedule for a set term length.
With Compass Mortgage, there are no surprises.
We guide you through the loan process from start to finish and are ready, willing and able to answer any questions you have at any time.
Apply today with the mortgage experts at Compass Mortgage
Take a look at the benefits of a Compass Mortgage home equity loan:
- Easier to qualify for than other types of loans
- Fixed interest rates
- Can use the funds however you want
- Immediate access to the funds in a lump sum
- Fixed payments, lower costs and longer terms
A home equity loan is the perfect way to access the cash locked up in your home, and Compass Mortgage is the perfect match for your lending needs.
Our team is a family, and we treat our borrowers as such.
Apply now if you’re ready to get started with your home equity loan.
If you still have questions about the process—reach out to our team.
We’re happy to answer any questions you have to help make the process smoother and more efficient, from application preparation to closing and accessing your funds.
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