One of the benefits of home ownership is the ability to live at your property while it increases in value. The gain in value, or equity, is the difference between what you owe on your home, and what it is currently worth on the market. If you have owned your Northwestern Wisconsin home for several years, you could be surprised by how much equity you already have!
When you sell your home, your equity is paid to you at closing, after transaction costs and mortgage balances are covered. If you’d rather not sell, but you need funds for home repairs or other expenses, there are 3 loan options you can consider.
1. Home Equity Loan. This allows you to borrow a portion of your home equity in a lump sum. Home equity loans typically have fixed interest rates, with terms ranging from 5 to 30 years. This is basically a second mortgage. It does not affect your original mortgage.
2. Home Equity Line of Credit (HELOC). In this scenario, your lender gives you access to a specific amount of credit, based on your home equity, for a limited time. When a HELOC is opened, you can “draw” against it on demand in any amount you wish, as long as it doesn’t exceed your credit line.
Pay attention to the HELOC terms. Some lenders require borrowed funds to be repaid in full when the draw period ends. Others allow more time.
3. Cash-Out Refinance. With a cash-out refinance, you replace your existing mortgage with a new mortgage based on your home’s current market value. The difference, being the equity, is paid to you at closing. (After all transaction costs are covered.)
If your new interest rate is higher, and you are borrowing most of your equity, you could end up with a higher mortgage payment than before. Also, if you are starting over with a new 30-year term, it will take some time for your home equity to build back up.
These are very basic examples. If you would like to learn more about your home’s current market value, contact us for your free Home Valuation! There’s no obligation. We can also refer you to local, expert lenders for your financing needs!
Six Lakes Realty is a locally owned family business with over 45 years of real estate experience. Contact us today for friendly, hometown service!
John Flor
Managing Broker
Six Lakes Realty
Office: (715) 924-4806
Email: john@sixlakesrealty.com