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What’s the top benefit of owning a home? Many would point to the equity you gain as you steadily pay down your mortgage. For instance, if you owe $100,000 on a home worth $150,000, you have $50,000 worth of equity.
You can tap into that equity to help pay for your children’s college tuition, fund the cost of a master bedroom addition or pay down your high-interest-rate credit card debt.
Which of these two options is best for you? As always, it depends on your personal financial situation payday advance and loan Nebraska and your goals.
A home equity loan is a second mortgage. Say you have $50,000 worth of equity in your home. Your mortgage lender might approve you for a home equity loan of $40,000. Once you take out this loan, you’ll receive a lump-sum check for the $40,000, money that you can spend however you’d like.
You do, of course, have to pay that money back. You’ll do this in the same way you’ve been paying your first mortgage: You’ll make regular monthly payments. Your home equity loan will come with a set interest rate and a set payment each month. You’ll make these payments until you pay off your home equity loan in full.
A cash-out refinance is significantly different from a home equity loan. While a home equity loan is a second mortgage, a cash-out refinance replaces your existing home loan.
In a cash-out refinance, you refinance your existing mortgage into one with a lower interest rate. However, you refinance your mortgage for more than what you currently owe. For example, say you owe $100,000 on your mortgage.