A property isn’t just a place to live; it’s a unique financial opportunity that can allow you to increase your cash flow and pay off significant debts. Tappable equity can be used to improve your quality of life, but only if you use it. Your home isn’t a liquid asset, but through various types of home loans and refinancing options, you can tap into your home’s equity.<\/p>\n
Keep reading to learn more about tappable equity and how you can tap into your home’s equity and improve cash flow.<\/p>\n
KEY TAKEAWAYS<\/h3>\n- Tappable equity is the amount of equity you can borrow against using a home equity loan, home equity line of credit, or cash-out refinance.<\/li>\n
- Unfortunately, not all of your home equity is tappable. Lenders usually only allow you to tap into 80% of your equity.<\/li>\n
- Home equity loans and lines of credit are second mortgages that require two monthly mortgage payments, while cash-out refinance loans allow you to replace your existing mortgage with a new one.<\/li>\n
- The right tappable equity loan option for you will depend on what you use the funds for and your unique financial situation.<\/li>\n<\/ul>\n<\/div>\n
Tappable Equity Defined<\/h2>\n
Tappable home equity is the portion of a homeowner’s equity that can be accessed or tapped into by taking out a loan against it. To fully understand this concept, you must understand the meaning of equity. Equity is the difference between the current market value of your property and its outstanding mortgage balance. For example, if your home is worth $400,000, and you owe $200,000 on your mortgage, your home equity is $200,000.<\/p>\n
Unfortunately, your house isn’t liquid, meaning you can\u2019t just pull cash out of it like you could another investment like stocks. Instead, you’ll need to take out a home equity loan<\/a>, home equity line of credit (HELOC), or cash-out refinance to access your home’s equity.<\/p>\nNot all equity is tappable either. Lenders typically only allow you to tap into 80% of your equity.<\/p>\n
Other factors, such as your creditworthiness and income, may affect how much equity you can borrow against.<\/p>\n
We\u2019re here to help walk you through your home-buying journey, whether you\u2019re just starting your search or looking to refinance your current property.<\/h3>Get Started<\/a><\/div><\/span><\/p>\nHow Do You Calculate Tappable Equity?<\/h2>\n
As we’ve mentioned, lenders typically only allow homeowners to borrow up to 80% of their home’s equity. The formula for calculating tappable equity is:<\/p>\n
Tappable Equity = Current Market Value of Property x 80% – Outstanding Mortgage Balance<\/i><\/p>\n
Using the example above, you could potentially borrow up to $320,000 (400,000 x 0.8). However, since you still owe $200,000 on your mortgage, your tappable equity is only $120,000 (320,000 – 200,000).<\/p>\n
In order to calculate your tappable equity, you need to know your property’s current market value. You can estimate it by looking at your area’s comps or using valuation tools. Your lender will order a third-party appraisal to determine your home’s current market value.<\/p>\n
What Can Tappable Equity Be Used For?<\/h2>\n
Tappable home equity can be used for anything. While the loans you must use to borrow against your home’s tappable equity are mortgages, they don’t function like a primary mortgage. A primary mortgage can only be used for a house or property, while a home equity loan, home equity line of credit, or cash-out refinance can be used for anything, including the following:<\/p>\n
\n- Home improvements:<\/b> Home improvements \/ renovations are investments that can increase the value of your home, giving you a higher return on investment (ROI) when you sell.<\/li>\n
- Debt consolidation<\/b>: If you have high-interest debts, such as credit card debt, you can use a cash-out refinance, home equity loan or a home equity line of credit (HELOC) to consolidate those debts into a single, lower-interest loan. As of August 8th, 2023, Americans have $1 trillion of credit card debt<\/a> with an average interest rate of 20.53%. Use our debt consolidation cashout refinance calculator<\/a> to determine your overall savings.<\/li>\n
- Education expenses: <\/b>Loans that allow you to access your home’s equity offer more affordable than student loans because they have lower interest rates.<\/li>\n
- Investments: <\/b>Your home’s equity can be used to make other investments like purchasing more property or investing in other strategies. However, this is risky because it requires you to put your home up as collateral.<\/li>\n
- Emergency expenses: <\/b>With tappable equity, you can pay for emergency expenses like medical bills or home repairs from events like fires, floods, and storms.<\/li>\n
- Retirement: <\/b>Tappable equity can improve your cash flow in retirement with a reverse mortgage<\/a> or allow you to pay off your existing mortgage and purchase a new, more affordable home.<\/li>\n<\/ul>\n
How to Access Your Tappable Equity<\/h2>\n
We’ve briefly touched on the fact that there are several ways to access your tappable equity. Each loan option has its pros and cons, so you should consider your unique financial situation. Since your home isn’t liquid, you’ll need to borrow against the equity or convert it to cash to use it. Here are a few methods you can use to access your home’s tappable equity:<\/p>\n
Home Equity Loan<\/h3>\n
A home equity loan is a second mortgage on your home. Unlike other options listed here, it’s a second mortgage, so you’ll be responsible for paying both the primary mortgage and secondary home equity loan.<\/p>\n
You receive a home equity loan as a lump sum with a fixed interest rate, and like your primary mortgage, it’s repaid in monthly installments over a fixed term. Unlike a conventional cash-out refinance, HELOANs go up to 90% of the value of the property.<\/p>\n
Home Equity Line of Credit<\/h3>\n
The difference between a home equity line of credit vs. home equity loan<\/a> is that a home equity line of credit works more like a credit card. However, like a home equity loan, it’s a second mortgage you’ll be required to repay in addition to your primary mortgage. With HELOC loans, you receive a revolving line of credit based on your loan amount. You can then borrow the money on an as-needed basis for a draw period that lasts anywhere from 5 to 10 years.<\/p>\nThe interest rate on home equity lines of credit are variable, but you only pay interest on the amount borrowed, offering more flexibility and the potential for affordability.<\/p>\n
Cash-Out Refinance<\/h3>\n
A cash-out refinance replaces your existing mortgage with a new one of a higher amount. The difference between what you owe on your mortgage and the new mortgage is taken in cash that can be used for anything.<\/p>\n
Replacing your old mortgage with a new one eliminates the need to pay two mortgages at once. However, you can expect higher monthly payments because your new mortgage is a higher loan amount than your previous one. It is important to note that conventional and FHA loans are limited to 80% of the value of the property while eligible veterans can access 100% of the value of their property.<\/p>\n
Reverse Mortgage<\/h3>\n
A reverse mortgage is an option for older homeowners over the age of 62. These loans allow borrowers to get a loan without a job<\/a> by converting part of their home equity into cash to supplement their retirement income. Retirement mortgages<\/a> like these allow borrowers to pay off their existing mortgage to downsize or take the cash out to pay debts or other large expenses.<\/p>\nWith a reverse mortgage, you can have access to a line of credit or receive your payments on a monthly basis. The largest benefit of this mortgage is that there are no payments on the amount borrowed until you sell the home or are no longer using it as your primary residence.
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<\/a><\/div><\/div>\nBenefits of Tappable Equity<\/h2>\n
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<\/p>\n
Tappable equity can help you improve your quality of life by allowing you to access cash from one of the largest investments most people make\u2014their homes. There’s no reason to be house-rich and cash-poor, especially if you have other significant debts. The benefits of leveraging tappable equity include the following:<\/p>\n
Low Interest Rates<\/h3>\n
Home equity loans, HELOC loans, cash-out refinances, and reverse mortgages have lower interest rates than other financing options like credit cards and personal loans. Lenders can offer these lower interest rates because the loan is secured against the property, reducing their risk.<\/p>\n
Tappable Equity Defined<\/h2>\n
Tappable home equity is the portion of a homeowner’s equity that can be accessed or tapped into by taking out a loan against it. To fully understand this concept, you must understand the meaning of equity. Equity is the difference between the current market value of your property and its outstanding mortgage balance. For example, if your home is worth $400,000, and you owe $200,000 on your mortgage, your home equity is $200,000.<\/p>\n
Unfortunately, your house isn’t liquid, meaning you can\u2019t just pull cash out of it like you could another investment like stocks. Instead, you’ll need to take out a home equity loan<\/a>, home equity line of credit (HELOC), or cash-out refinance to access your home’s equity.<\/p>\n Not all equity is tappable either. Lenders typically only allow you to tap into 80% of your equity.<\/p>\n Other factors, such as your creditworthiness and income, may affect how much equity you can borrow against.<\/p>\n As we’ve mentioned, lenders typically only allow homeowners to borrow up to 80% of their home’s equity. The formula for calculating tappable equity is:<\/p>\n Tappable Equity = Current Market Value of Property x 80% – Outstanding Mortgage Balance<\/i><\/p>\n Using the example above, you could potentially borrow up to $320,000 (400,000 x 0.8). However, since you still owe $200,000 on your mortgage, your tappable equity is only $120,000 (320,000 – 200,000).<\/p>\n In order to calculate your tappable equity, you need to know your property’s current market value. You can estimate it by looking at your area’s comps or using valuation tools. Your lender will order a third-party appraisal to determine your home’s current market value.<\/p>\n Tappable home equity can be used for anything. While the loans you must use to borrow against your home’s tappable equity are mortgages, they don’t function like a primary mortgage. A primary mortgage can only be used for a house or property, while a home equity loan, home equity line of credit, or cash-out refinance can be used for anything, including the following:<\/p>\n We’ve briefly touched on the fact that there are several ways to access your tappable equity. Each loan option has its pros and cons, so you should consider your unique financial situation. Since your home isn’t liquid, you’ll need to borrow against the equity or convert it to cash to use it. Here are a few methods you can use to access your home’s tappable equity:<\/p>\n A home equity loan is a second mortgage on your home. Unlike other options listed here, it’s a second mortgage, so you’ll be responsible for paying both the primary mortgage and secondary home equity loan.<\/p>\n You receive a home equity loan as a lump sum with a fixed interest rate, and like your primary mortgage, it’s repaid in monthly installments over a fixed term. Unlike a conventional cash-out refinance, HELOANs go up to 90% of the value of the property.<\/p>\n The difference between a home equity line of credit vs. home equity loan<\/a> is that a home equity line of credit works more like a credit card. However, like a home equity loan, it’s a second mortgage you’ll be required to repay in addition to your primary mortgage. With HELOC loans, you receive a revolving line of credit based on your loan amount. You can then borrow the money on an as-needed basis for a draw period that lasts anywhere from 5 to 10 years.<\/p>\n The interest rate on home equity lines of credit are variable, but you only pay interest on the amount borrowed, offering more flexibility and the potential for affordability.<\/p>\n A cash-out refinance replaces your existing mortgage with a new one of a higher amount. The difference between what you owe on your mortgage and the new mortgage is taken in cash that can be used for anything.<\/p>\n Replacing your old mortgage with a new one eliminates the need to pay two mortgages at once. However, you can expect higher monthly payments because your new mortgage is a higher loan amount than your previous one. It is important to note that conventional and FHA loans are limited to 80% of the value of the property while eligible veterans can access 100% of the value of their property.<\/p>\n A reverse mortgage is an option for older homeowners over the age of 62. These loans allow borrowers to get a loan without a job<\/a> by converting part of their home equity into cash to supplement their retirement income. Retirement mortgages<\/a> like these allow borrowers to pay off their existing mortgage to downsize or take the cash out to pay debts or other large expenses.<\/p>\n With a reverse mortgage, you can have access to a line of credit or receive your payments on a monthly basis. The largest benefit of this mortgage is that there are no payments on the amount borrowed until you sell the home or are no longer using it as your primary residence. Take charge of your financial wellness and achieve your homeownership goals Tappable equity can help you improve your quality of life by allowing you to access cash from one of the largest investments most people make\u2014their homes. There’s no reason to be house-rich and cash-poor, especially if you have other significant debts. The benefits of leveraging tappable equity include the following:<\/p>\n Home equity loans, HELOC loans, cash-out refinances, and reverse mortgages have lower interest rates than other financing options like credit cards and personal loans. Lenders can offer these lower interest rates because the loan is secured against the property, reducing their risk.<\/p>\nWe\u2019re here to help walk you through your home-buying journey, whether you\u2019re just starting your search or looking to refinance your current property.<\/h3>Get Started<\/a><\/div><\/span><\/p>\n
How Do You Calculate Tappable Equity?<\/h2>\n
What Can Tappable Equity Be Used For?<\/h2>\n
\n
How to Access Your Tappable Equity<\/h2>\n
Home Equity Loan<\/h3>\n
Home Equity Line of Credit<\/h3>\n
Cash-Out Refinance<\/h3>\n
Reverse Mortgage<\/h3>\n
\nDownload the Griffin Gold app today!<\/h3>
\r\nUse invitation code: GRIFGOLD<\/b> to register.<\/p><\/a><\/a><\/div><\/div>\nBenefits of Tappable Equity<\/h2>\n
<\/p>\nLow Interest Rates<\/h3>\n