In today’s high interest rate environment, borrowing money can come with a hefty price tag. The Federal Reserve has raised interest rates several times over the past year, and, another surge is likely this week. The average interest rate on a personal loan now ranges from 8% to 36%, for example, and if the rate you’re offering is at the higher end of that range, it can compound the cost of borrowing money sharply.
But the good news is that if you’re a homeowner with equity in your home, borrowing money doesn’t have to break the bank. Home ownership comes with many benefits and one of the most notable benefits is affordabilityFor various purposes, such as financing home improvements, paying off debt or financing major life events.
While some methods of borrowing from home equity can come with a hefty price tag, there are a few inexpensive ways you can tap into your home equity. If you’re thinking about using your equity to consolidate high-interest debt, tackle needed renovations or cover an unexpected expense, it helps to know you can do so affordably.
Get started by exploring some of the best home equity loans available now.
3 Inexpensive Ways to Tap into Your Home Equity
Here are three inexpensive ways homeowners can access their accumulated home equity.
Home Equity Line of Credit (HELOC)
If you need access to cash from your home equity but aren’t sure how much you’ll need — or how long you’ll need it —which acts as a In your home, is usually a good option. A HELOC is often the cheapest way to tap into your home equity because you only pay interest on what you borrow — and nothing in between. With most lenders.
A HELOC works much like a regular credit card, except you’re borrowing against the equity in your home up to a certain limit — usually up to. You are able to draw from the line of credit for a certain period of time and when it’s time to pay it back, you only pay interest on the money you borrowed. This can be savings compared to other types of loans.
Also, HELOC rates are generally lower than other types of loans. Average up to July 24Nationwide, while average credit card rates were . These low rates, combined with the low or no fees associated with this type of home equity product, can make HELOCs one of the most affordable options for tapping home equity.
Home equity loan
AAnother type is a second mortgage loan, and it’s a relatively easy and budget-friendly method of tapping into your home equity. With a home equity loan, you borrow a lump sum of money against the value of your home and pay it back over a fixed period, usually with a fixed interest rate. This option typically offers lower interest rates than other types of loan products — and provides predictability in monthly payments, making it easier to budget for the loan.
Home equity loanFor homeowners seeking a one-time infusion of cash for a specific purpose, such as a home renovation project or high-interest debt consolidation. Home equity loan interest rates are generally lower than unsecured personal loans or credit cards, making them an affordable choice. At the end of July, the average home equity loan rate was 8.47%.
In most cases, you also have the ability to lock, which protects you from potential future interest rate hikes. Also, the interest you pay on a home equity loan may , depending on your country’s tax laws, further increases its affordability. However, a home equity loan can be slightly more expensive than a HELOC because you’re paying a lump sum of interest instead of what you’re borrowing from your line of credit.
Find out how much you’re eligible to borrow and the rate you might qualify for right here.
Refinance your mortgage with aIt can be another budget-friendly way to tap into your home equity. When you refinance your existing mortgage, you secure a new loan for a larger amount than your current one, and the difference can be paid to you in cash. This approach allows you to access a significant portion of your home equity and potentially benefit from a lower interest rate on your overall mortgage.
Remember, though, that refinancing is involved, which can add to the overall cost of a cash-out refinance. And it may not be the best option right now for homeowners who secured low interest rates over the past few years, as interest rates are much higher than they were during the height of the pandemic.
A cash-out refinance can be a smart option to consider if interest rates are lower than average, but it’s important to carefully evaluate whether the long-term savings outweigh the upfront and long-term costs, especially if your mortgage loan’s interest rate is lower than what’s being offered now.
Tapping into your home equity doesn’t have to be an expensive endeavor. There are ways to access your home equity without breaking the bank, whether you need a lump sum loan, line of credit or simply want to refinance your loan and cash out some of your equity. Just be sure to do your research and compare the available options to determine which method best aligns with your financial objectives and long-term plans.