How to Release Potential from your Home

If you already own a home, your equity can work for you right now

The typical home in the United States has doubled in value in the past ten years. For homeowners who bought during the early nineties or even before that, this means long-term wealth and extra value right now. It means long-term wealth in the sense that if you sell your home anytime or in the future, you will make lots of money. However, if you don't want to sell you home anytime soon, this long-term wealth is future wealth on paper only.

Equity Loans

If you want value right now, one thing you can do is take out a second mortgage, also called an equity loan.

With a home equity loan, you're borrowing against the increased value of your home, essentially taking out another mortgage, which you will pay down monthly over a number of years, like fifteen or thirty. It's just like your original mortgage, only you won't pay any points or closing costs.

HELOC, or Home Equity Line of Credit

The HELOC isn't a traditional loan, like the second mortgage. Instead, it's a line of credit, on which you are borrowing against the actaul value of your home. In other words, if you take the value of your home, subtract what you owe, the result is your line of credit. You only borrow what you need at the moment, and the balance changes month to month, depending on how much you borrowed that month, and on interest rates that month.

The Cash-Out Refinance

This option is basically switching loans. You switch out your old mortgage for an even bigger one. Use the new, bigger loan to pay off the old one, and the remaining cash from your new loan is yours to use however you like.