Page 18 - Real Estate Now Jan-Feb 2022

The primary way homeowners access their equity is by selling their home. Many sellers will use their equity as a
downpayment on a new home. Or some homeowners may choose to downsize and use the equity to supplement
their income or retirement savings.

But what if you want to access the equity in your home while you’re still living in it? Maybe you want to finance a
home renovation, consolidate debt, or pay for college. To do that, you will need to take out a loan using your home
equity as collateral.

There are several ways to borrow against your home equity, depending on your needs and qualifications:
Second Mortgage - A second mortgage, also known as a home equity loan, is structured similar to a primary
mortgage. You borrow a lump-sum amount, which you are responsible for paying back—with interest—over a
set period of time. Most second mortgages have a fixed interest rate and provide the borrower with a predictable
monthly payment. Keep in mind, if you take out a home equity loan, you will be making monthly payments on both
your primary and secondary mortgages, so budget accordingly.

Cash-Out Refinance - With a cash-out refinance, you refinance your primary mortgage for a higher amount than
you currently owe. Then you pay off your original mortgage and keep the difference as cash. This option may be
preferable to a second mortgage if you have a high interest rate on your current mortgage or
prefer to make just one payment per month.
Home Equity Line of Credit (HELOC) - A home equity line of credit, or HELOC, is a revolving
line of credit, similar to a credit card. It allows you to draw out money as you need it instead
of taking out a lump sum all at once. A HELOC may come with a checkbook or debit card
to enable easy access to funds. You will only need to make payments on the amount
of money that has been drawn. Similar to a credit card, the interest rate on a HELOC
is variable, so your payment each month could change depending on how much you
borrow and how interest rates fluctuate.

Reverse Mortgage - A reverse mortgage enables qualifying seniors to borrow against
the equity in their home to supplement their retirement funds. In most cases,
the loan (plus interest) doesn’t need to be repaid until the homeowners
sell, move, or are deceased.6
Tapping into your home equity may be a good option for
some homeowners, but it’s important to do your
research first. In some cases, another type of
loan or financing method may offer a lower
interest rate or better terms to fit your needs.
And it’s important to remember that defaulting on
a home equity loan could result in foreclosure. Ask us
for a referral to a lender or financial adviser to find out if a
home equity loan is right for you.

We’re here to help you
Wherever you are in the equity-growing process, we can help. We work with buyers to find the perfect home to begin
their wealth-building journey. We also offer free assistance to existing homeowners who want to know their home’s
current market value to refinance or secure a home equity loan. And when you’re ready to sell, we can help you get
top dollar to maximize your equity stake. Contact us today to schedule a complimentary consultation. ■

The above references an opinion and is for informational purposes only. It is not intended to be financial advice. Consult a financial professional for advice regarding your
individual needs.
Sources: National Association of Realtors, Urban Institute, Census Bureau, Remodeling Magazine, Investopedia, Bankrate

18 | REAL ESTATE NOW | LB@LoraleeBurns.com