Put Your Home’s Equity to Work for You!

Today’s home values are at an all-time high, and many homeowners are finding more equity in their homes than ever.

What is home equity? It’s the difference between what you owe on any outstanding mortgage and your home’s market value.

For example, if your home value is $200,000.00 and you owe $110,000.00, you have $90,000.00 in equity. Most lenders will lend up to 85% of the home’s value, less any outstanding mortgage balance, which would be $60,000.00 in the above scenario.

Reasons to Access Your Home’s Equity

1. Home Improvements

Many homeowners stay put in the competitive seller’s market rather than purchase a new home. According to bankrate.com, these are the top 10 renovations that increase the value of a home:

  • New Garage Door(s)
  • New Entry Door
  • Stone Veneer
  • Kitchen Remodel
  • New Siding
  • Deck Addition
  • Bathroom Remodel
  • HVAV Conversion

Bear in mind that the costs for these renovations can vary significantly by region based on the cost of labor and materials and the level of service offered. Still, the right remodeling project can boost your home’s worth over time. Likewise, buyers will likely pay more for a well-kept property with modern, move-in-ready updates if you sell your home.

2. Supplementing an Emergency Fund

Everyone needs an emergency fund to cover unexpected expenses such as car repairs, major appliance breakdowns, etc., but only some have enough saved to cover such emergencies. A HELOC is an excellent option for supplementing an emergency fund since you only have to pay it back if you use it.

3. Debt Consolidation

A debt consolidation loan using the equity in your home is a good option because the average interest rate on a Home Equity Loan can be lower than the average credit card interest rate. Some advice is to commit to refraining from carrying credit card balances again; otherwise, you’re carrying debt upon debt.

Ways to Access Your Home’s Equity

There are three different ways to access your home’s equity.

1. Cash-out refinance of an existing 1st mortgage

A cash-out refinance is an entirely new loan that replaces your existing mortgage, which is more significant than your current outstanding balance. Once the new loan closes, you will collect the difference (minus closing costs) in cash. However, for many homeowners, their current interest rate is much lower than the current market rates, so that may not make sense.

2. Home Equity Line of Credit (HELOC)

A HELOC is a line of credit with a variable rate, meaning the rate adjusts with the market for as long as the credit line is open.  You can access these funds as needed, with monthly payments based on any outstanding balance – if you have no outstanding balance, no fee is due.

3. Fixed Rate Home Equity loan

The rate is fixed throughout a set loan term and calls for equal monthly installment payments based on the amount borrowed.

Final Thoughts 

Each option allows you, as a homeowner, to turn your home equity into cash, which can make it possible to tackle home improvement projects, consolidate debt, and save for a rainy day.

Before committing to any of the above options, we recommend talking with one of our retail bankers or mortgage lenders about your goals so they can help you choose the plan best suited for your specific needs. Remember, your home is one of your greatest assets. Let it (and us) work for you!

Diana Davidson
Mortgage Lender
NMLS No. 746408

815-645-2029
[email protected]

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Opinions expressed are solely my own and do not express the views or opinions of Stillman Bank.