If you’re like most people who own their own home, you could use a little extra financial cushion. As a homeowner, your home equity is likely your most valuable asset.

Home equity is, to put in simple terms, the part of your home and property you truly “own.” When you buy a home, you do own your home, but when you borrow money to purchase, your lender also has an interest in your home until that loan is paid off. Over time, the amount of equity will increase as your home loan is paid down and as your property value increases.

There are several ways you can tap into your equity, but it’s important to first understand exactly how it works in order to make educated decisions about how and when to use it.

Home equity loan

A home equity loan, sometimes called a “second mortgage,” allows you to pull cash out of your equity to use towards almost anything. In general, this loan allows you to pull out around 80 to 85 percent of your home’s value minus what is owed on your mortgage. You receive the funds all at once and repay the loan at a fixed rate over a preset number of years. This type of loan can be used to borrow a set amount that you know you need to borrow, such as a for a home renovation project.

Home Equity Line of Credit (HELOC)

A HELOC allows a homeowner to borrow against the equity built up in their home via a line of credit. It typically allows for up to 85 percent of the home’s value, minus what is owed on the loan. This credit can be used for bigger purchases or may reduce monthly payments toward other debt.

Cash-out refinance

A cash-out refinance allows you to refinance your mortgage and borrow more than you already own on your loan, keeping the difference as cash. You typically need at least 20 percent equity in your property to be eligible. There are two options when it comes to cash-out refinances. A cash-out refinance allows you to use the funds for what you want. A second option, a limited cash-out refinance, allows you to use the funds for a specific purpose, including paying off your closing costs.

Your home is an investment in your financial future, and you have many options available. We’re here to help you make informed decisions, from your first purchase and throughout homeownership.

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