Lump Sum or Line of Credit? Learn the Best Way to Tap Your Equity

When you bought your home a few years back, you probably figured you'd be working to pay down your mortgage for at least fifteen years. But what most people don't realize is that their home is worth way more now than it was when they bought it.

How much cash are we talking about? According to Zillow, the average American home value has increased by 31% (from $153K to $201K). For the median household, that means you're looking at a lump sum of $48,000, before considering all the equity you built up by paying your mortgage. Better yet, home prices are expected to keep rising. Tapping into your equity can be a smart financial tool that can really pay off.

Ways to Access Your Equity

There are right and wrong ways to access your home’s equity.

It all depends on your financial goals. Check out the most common scenarios:

I am a homeowner & Want A Flexible Way to Access My Equity

Are you planning a big home renovation, but don’t know the exact cost? Do you need additional funding for a big event, like a wedding? If you need flexible funding, consider a home equity line of credit (HELOC) .

A HELOC is a credit line, like a credit card, that allows you to draw some or all the money up to your limit. The beauty of getting a HELOC is that you only pay interest on what you use, rather than on an entire lump sum. But be careful, HELOC interest rates are variable, so as interest rates rise, the cost of borrowing does too.

I am a homeowner & want to access a lump Sum from my equity

Pulling out a lump sum is helpful if you are sure you know the full amount of cash you would like to access. Some people access their home equity to pay for their kid’s college tuition or consolidate higher interest debts. You have two options for accessing a lump sum from your home equity; a home equity loan or a cash out refinance.

​With a home equity loan the interest rates are fixed and because it is secured by your home rates are very low. The caveat to home equity loans is that they are usually only offered to consumers that have excellent credit.

What if my credit score isn't excellent? No worries, you can access your home equity through a cash out refinance. With a cash out refinance you refinance your house for more than you owe and keep the difference. This is a very popular way for people to access their home equity, especially if their mortgage rate is higher than today's refinance rates.


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