How to Tap Your Home Equity Without Putting Your Home at Risk

For many homeowners, their home is their largest asset, and the equity built up in it can be a real safety net. If you're facing a big expense, such as a medical bill, a major repair or another financial emergency, borrowing against that equity may be an option. It can also put your home at risk if it's not done carefully. Here's what to know before you tap it.

What home equity is

Your equity is the difference between what your home is worth and what you still owe on it. It grows as you pay down your mortgage and as your home's value rises. Lenders generally let you borrow against a portion of it, with your home serving as collateral.

The three most common ways to borrow

• Home equity line of credit (HELOC). A revolving line of credit, a bit like a credit card secured by your home. You draw what you need, when you need it, and typically pay a variable interest rate.
• Home equity loan. A lump sum borrowed up front, usually with a fixed rate and a set monthly payment, alongside your existing mortgage.
• Cash-out refinance. You replace your current mortgage with a new, larger one and take the difference in cash. This changes the rate and terms on your whole mortgage, which matters if your current rate is low.

How to borrow responsibly

• Borrow only what you need. It can be tempting to take more while you're at it, but every dollar is secured by your home.
• Know your payment. Understand exactly what you'll owe each month, and how a variable rate could change it.
• Look at the full cost. Compare interest rates, closing costs and fees across lenders.
• Plan for repayment. Have a realistic plan to pay it back, especially if your income is uncertain.
• Consider the alternatives. Depending on your situation, there may be options that don't put your home on the line.

Get the right advice

I'm not a lender or a financial advisor, and the right choice depends on your situation. Before you borrow, talk with a trusted lender and a financial professional about your options.

What I can help with is knowing what your home is worth today, which is the starting point for understanding your equity. If you're curious what your North Carolina home could sell for, reach out anytime for a no-pressure conversation, or look at my local market reports.

Source and further reading: “How to Safely Tap Home Equity in a Financial Emergency”, originally published by NerdWallet, via Trending Home News.