Here is a common scenario….

You were wise enough to finance/refinance back when rates were at historic lows.  A brilliant move!  But now you need access to funds for something important, like a home renovation, college tuition, or paying-off high-interest credit card bills.

The challenge?  Credit card interest rates are soaring above 20%. There are huge tax penalties if you access your retirement funds. You have growing equity in your home, but a cash-out refinance is unthinkable, since today’s interest rates could more than double the interest rate of your current mortgage.  What do you do?

Fortunately, there are several options available to you. According to articles in Investopedia, there are ways to access your home equity without selling or refinancing your home. These include a Home Equity Line of Credit (HELOC), a Home Equity Loan, or a Home Equity Conversion Mortgage (HECM).

A HELOC loan functions more like a credit card, (but with much lower interest rates), where the lender extends a line of credit for an amount based on the equity in your home. You can then access those funds as needed, instead of getting a lump-sum payment. Borrowers can use what they need and once they pay off the balance, the loan is over.

How much credit you get largely depends on how much equity you have in your home. (Lenders usually require homeowners to retain at least a 20% equity in their home, but there are exceptions.)

A Home Equity Loan is a loan you take out against the equity you already have in your home, without refinancing your current mortgage. It gives you fast access to cash, with a predictable, long-term repayment schedule. It’s a popular option for homeowners to access some of the equity they’ve built in their homes without selling or refinancing at a higher interest rate.

If you are age 62 or above, you may qualify for a HECM loan. This type of loan can function just like a HELOC or Home Equity Loan, but differs in a major way.  It does not force the borrower to make monthly payments. The borrower can choose to either make traditional monthly payments, or skip them entirely.  The interest from skipped payments is simply added to the loan balance.

Please note that each option has its own pros and cons and it’s important to consider them carefully before making any decisions.  We encourage you to speak to a trusted loan advisor to learn more about which option is best suited for your particular needs.

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