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Home Financing 101

Safely Accessing Your Home Equity: What You Should Know

4 min read
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picture of author, Hometap TeamBy Hometap Team on January 9, 2022

f you’re a homeowner, you’ve likely built up equity in your home — but what, exactly, is that? In the simplest terms, home equity is the value of your interest in your home. It’s a number that can change over time due to several factors. These include your mortgage payments — the more you put toward your home, the more equity you build — as well as local and national trends in the real estate market.

While many homeowners don’t realize it, there are many methods for tapping into your equity and using it now without having to wait until you decide to sell your home. This can be a great solution if you’re seeking extra funds to pay off debt, complete renovations, or any number of financial goals. An easy way to get a general idea of how much equity you may be able to access is with our home equity calculator. Simply plug in a few details about your home and receive an instant estimate.

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How Much Equity Can I Access From My Home?

The amount of equity you can borrow from your home depends first and foremost on your home’s current value, as well as the specific product you use to access your equity, which we’ll cover below. However, it’s important to note that no matter which option you choose, you won’t be able to leverage your home’s full value; most choices allow you to take out a maximum of 85%. In other words, you typically need to retain a minimum of 15% equity in your home. 

Financial Products for Accessing Equity

There are several ways you can reap the benefits of your home equity; here are a handful of the most common ones.

Home Equity Loan

Maximum amount of equity: Typically 80-85% of home value

Many homeowners first look at a home equity loan when seeking funding, as it’s one of the most common options for tapping into equity. The advantages include receiving a lump sum of cash and having consistent monthly payments and a fixed interest rate. On the other hand, you’ll have to pay off the loan in addition to your regular mortgage payments, and the process of application and approval is frequently quite challenging.

Home Equity Line of Credit (HELOC)

Maximum amount of equity: Typically 85% of home value

A HELOC, or home equity line of credit, offers you flexibility when it comes to both how much equity you can access and how often you can access it, since it acts like a credit card from which you can draw funds incrementally. However, because HELOC interest rates are variable, you won’t have a fixed (predictable) payment each month, and you run the risk of the lender freezing your HELOC in the event that your credit score drops. Similar to a home equity loan, the application and approval process for a line of credit can be daunting.

Cash-out Refinance

Maximum amount of equity: Typically 80% of home value

A cash-out refinance is essentially a new mortgage with a balance that exceeds that of your previous one. Many times, a refinance can allow you to lock in a lower interest rate — and, in turn, pay a lower amount each month toward your mortgage. There are some disadvantages, though: in addition to application and approval hurdles, you’ll have to deal with the same fees that came with your first mortgage, including those for closing and origination, and your payoff timeline will likely be extended since it is a new mortgage.

Home Equity Investment

Maximum amount of equity: Typically 30% of home value, up to $600,000

A home equity investment gives you access to your home equity without the hassle of debt. You get cash in exchange for a share of your home’s future value, and can use it for whatever is most important to you. If you’re hoping to use your equity to handle debt, this can be a smart option as there are no monthly payments or interest to worry about. The application process is typically more streamlined and efficient than a loan or line of credit.

Tap into your equity with no monthly payments. See if you prequalify for a Hometap investment in less than 30 seconds.

You should know

We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.

Hometap is made up of a collaborative team of underwriters, investment managers, financial analysts, and—most importantly—homeowners—in the home financing field that understand the challenges that come with owning a home.

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