Owned a Home for 5 Years or More? You Could Be Sitting on A Pile of Cash!

Home values across America are soaring, and the good news is you don't have to be selling to take advantage of it. If you're a homeowner, climbing home values make it a great time to finance big projects. Maybe college is right around the corner, or there is the extra bathroom you've been longing to add. Whatever your big-ticket project might be, rising home values mean you could be sitting on a pile of cash and might not even know it.

HELOC – Why It’s a Hot Financing Option

Just the fact that your home value has increased means you’ve accumulated extra equity - without paying a dime! This provides you with a fantastic opportunity to finance some major projects using that free equity – and a HELOC might be the perfect way to do it.

What’s A HELOC?

HELOC is an acronym for "Home Equity Line of Credit". It's a type of home equity loan that can tap into your home’s value and help you take advantage of the extra equity the current market is providing. This type of loan has a lot of perks, but its main appeal is that it works a little like a credit card - your lender allows you to borrow up to a certain amount, which you can withdraw in varying amounts when you need it. Also like a credit card, as you pay off the principal, you can use the credit again up to the maximum amount your lender specified, allowing you to maintain a revolving balance over the life of your loan. The nice part is, you only pay interest on what you borrow instead of on the total amount available. Interest rates are variable and are often calculated using an index, like the prime rate, plus a margin.

Why A HELOC Right Now

When the value of your home rises, so does your equity. Real estate data firm Zillow reported that over the last 5 years, the average American's home value increased by 25% (from 158K to 198K). That means your home has roughly $40,000 of extra equity you can tap into! And it gets even better. Projections vary, but most experts agree we'll continue to see a rise in home values in 2018 and beyond. That means you have even more equity to borrow against both now and in the future, and more security knowing your home is likely to continue increasing in value moving forward.

Access My Pile of Cash

Smart Uses for a HELOC

  • You have a big project or life expense to finance, such as college, large home improvements, or a wedding.
  • You want to consolidate higher-rate loans or credit-cards into a lower payment and interest rate.
  • Your needs are not static, or you are considering using funds for multiple projects where the total amount needed is not certain.

Getting the Most From Your HELOC

Ready to start shopping? Here are some key tips and comparison points you should pay special attention to.

Look for Low Introductory Rates

Some lenders offer low introductory interest rates. It can save you money to capitalize on these offers in the short term. Read carefully though. Your margin may be affected by a low introductory offer, so be sure to ask if it’s part of the calculation so you don’t pay back what you saved initially – or more – over the life of the loan.

Is There A Rate Cap?

Some HELOC’s can have a “maximum interest rate cap”. This might apply to a specific period of time within the total life of the loan, or it could apply to the total length. Either way, it can be a big benefit in a rising interest rate environment, so keep your eye out for it.

Key Comparison Points

1. Rates

As with any type of loan, rates vary. Be sure to look at both the APR and the margin being offered. For example, if the prime rate is 2% and the margin (or markup) is 2%, your interest rate will equal 4%.

2. Draw Periods

HELOC’s let you withdraw money during the “draw” period. After it ends, the repayment period begins, so make sure you know how long the draw period lasts.

3. Balloon Payments

In order to lower your monthly payments, lenders may add a large, one-time payment at the end of your repayment term. If it’s part of your offer, that might be fine – just keep it on your radar so you can plan for it.

4. Inactivity Fees & Minimum Balances/Withdrawals

One of the best features of a HELOC is its flexibility, so check carefully to make sure there isn’t a minimum withdrawal amount, or minimum balance you need to maintain to give you the most options. Also look to see if the lender specifies a fee for “inactivity” – not drawing money for a certain length of time.

5. Prepayment Penalties

If you’re considering selling your home, or plan to use another option to pay off a HELOC balance before the end of your term, some lenders may charge a fee for prepayment or cancellation, so check carefully and weigh all the benefits and penalties against your situation.

Start shopping for a HELOC

More Ways to Access Your Piles Of Cash

There is more than one way to tap into the extra equity the housing market is currently providing - Home Equity Loans and Cash Out Refinances.

Home Equity Loans

What’s A Home Equity Loan?

A home equity loan is another you can convert some of your windfall equity into cash. Its main difference from a HELOC is that a home equity loan typically has a fixed interest rate, meaning your payment is the same each month, and is provided as a one-time lump sum. Home equity loans also typically include closing costs and fees which are assessed in addition to the loan amount you are provided. It’s a great loan when you know exactly how much you’ll need to finance a specific project and prefer the security of a fixed rate and static monthly payments.

Smart Uses for a Home Equity Loan

  • You have a big project to finance where you know the exact amount needed
  • Home improvements, life events, emergencies, investments, debt consolidation
Shop for a home equity loan

Cash Out Refinance

What’s a Cash Out Refinance

If you have a substantial amount of equity in your home, but have not refinanced recently, the rise in your home’s value means it’s an ideal time to consider a cash out refinance. This loan can help you refinance your home at a lower rate, and get you extra cash above and beyond the total value of your home as a cash payout! It can be an excellent way to tap into your extra equity, reduce your mortgage rates and fund extra projects.

Smart Uses for a Cash Out Refinance

  • Improving the terms of an existing home loan
  • Home improvements, life events, paying off car loans/credit cards
Shop for a Cash Out Refinance
HELOC
PROS CONS
Lower Interest Rates - Pay interest only on the amount you draw at a much lower rate than many loan types. Variable Interest Rates – If the prime index used to calculate your interest rates increases, your monthly payments may also increase.
Interest-Only Payments - Interest-only payments may be available during the draw period for extra flexibility. Discipline – Because you have access to a large amount of equity, you might be tempted to overspend.
Tax-Deductible Interest – Interest paid is usually tax deductible.
Flexibility – The amount you withdraw is based on the needs of your immediate project and does not require you to take a lump sum and reduce your equity all at once.
HOME EQUITY
PROS CONS
Lower Interest Rates – Interest rates are typically much lower for a home equity loan than many other loan types Falling Interest Rates – If home values decrease, taking out all or most of the equity in your home can work against you.
Tax-Deductible Interest – Interest paid is usually tax deductible. Costs – Closing costs and other fees may be assessed in addition to the interest, which may make the total cost of the loan higher than a HELOC.
Fixed Interest Rates – Interest rates are typically fixed for the life of the loan which provides security against rising interest rates and stable monthly payments.
CASH OUT REFINANCE
PROS CONS
Lower Interest Rates – Interest rates are typically much lower for a home equity loan than many other loan types Falling Interest Rates – If home values decrease, taking out all or most of the equity in your home can work against you.
Tax-Deductible Interest – Interest paid is usually tax deductible. Costs – Surcharges are assessed against the entire amount of the refinance and can be substantial.
Fixed Interest Rates – Interest rates are typically fixed for the life of the loan which provides security against rising interest rates and stable monthly payments. Time – Approval times for can take much longer, and include stricter qualification requirements, than a HELOC or Home Equity Loan.

Any way you look at it, rising home values mean big opportunities. Tapping into the extra equity you’ve accumulated in your home is a smart way to finance a lot of important projects, consolidate your debts and invest in your overall quality of life. LendingTree can help you find the best options and simplify your decision-making process with sided-by-side comparisons. Capitalize on the extra benefits you can obtain by tapping into your home equity while home values are still on the rise.

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