Whether you're looking to fund a home renovation, pay for unexpected medical bills, or consolidate debt, borrowing against your home's equity could be a good way to get your hands on a large chunk of cash.
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Home equity is a valuable tool that gives you a lot of financial options. On one hand it means that you would net a profit if you were to sell. But what if you have no interest in moving? In that case, you may still be able to tap your home equity by taking out a home equity loan. Once you've estimated your home's value, subtract your mortgage balance to calculate your home equity. Let's say your home is worth $400,000 and you owe $160,000 on your mortgage. In this case, you'd have $240,000 of equity built up in your home and a 40% loan-to-value ratio.
During the draw period, HELOCs work, in many ways, like credit cards. You have complete control of how much you borrow and you can borrow against your credit limit multiple times. However, after the draw period ends, you won't be able to borrow any more and you'll start making equal monthly payments.
In addition to getting access to attractive rates and terms, you may be able to get your hands on a lot more cash with a home equity loan than you'd be able to borrow with an unsecured loan. And homeowners are allowed to deduct the interest paid on a home equity loan as long as the money is used for home improvement.
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