A home that you own outright has equity value. If you take out a mortgage on a home that you own, you can utilise the equity in a few different ways. If your finances are sound and you have a good credit history and score with a good ratio of debt to income, one of the following options is available to you.
Cash-out refinance
In typical cases, a homeowner uses a cash-out loan to replace their old mortgage. However, if you own your home outright, you do not need the loan to pay off a mortgage. Instead, you receive the cash. Most banks allow homeowners to borrow 80% of the value of their home after appraisal and settlement costs.
Home equity loan
As with a cash-out, the loan amount is dependent on your home’s value. However, your credit score also impacts the amount a bank is willing to lend you. Most banks allow you to borrow 80% of your home’s equity, but smaller banks and non-bank lenders may let you borrow more. If approved for a home equity mortgage, you will pay higher interest rates than if you refinanced.
Home equity line of credit
Home equity lines of credit are similar to home equity loans. However, with a home equity loan, you receive cash. With a revolving line of credit, you have a credit line you can borrow from as you need to. Typically, you can draw from these lines of credit for as long as ten years as long as you repay what you borrow.
Securing a mortgage on a home, you already own using its equity is a common practice. It can be used for renovations and holidays and purchasing a new home or car without having to sell the home. Deciding on the right type of mortgage for you can be challenging. Mortgage House and its expert brokers are here to help.
