If you need cash and you have equity in your home, you may automatically turn to the cash-out refinance. Did you know that this isn’t your only option, though? There are other ways you can get the cash you need that don’t involve refinancing your first mortgage.
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If you like your first mortgage’s interest rate or term, why not leave it alone and explore one of the following options?
Home Equity Line of Credit
A home equity line of credit is a second mortgage, but it works almost like a credit card. Yes, your home is your collateral, but you can borrow up to 85% of your home’s equity with this loan. You apply for the full amount that you want, but you don’t have to withdraw the funds right away.
The lender will place the funds in a secure bank account for you. If you need funds, you can write a check or use the provided debit card to access the funds. It isn’t until you withdraw any funds that you owe a payment. The only money you’ll owe is the interest on the money you withdrew.
You are free to use the line as you need. You are also free to pay the funds back that you borrowed as you can. This goes on for the first ten years, just like a credit card. After the 10th year, the loan goes into repayment mode. At this point, you cannot make any more withdrawals. You must also pay principal and interest payments for the next twenty years in order to pay the loan off in full.
The HELOC often has relaxed underwriting guidelines and fewer fees than the cash-out refinance, which is what makes it a good option for many homeowners looking to tap into their home’s equity.
Home Equity Loan
If you don’t want a line of credit or you only have a one-time need for funds, you can also apply for the home equity loan. This is also a second mortgage, but you receive the funds in one lump sum. You also pay interest and principal on the loan right away. You don’t have the option to reuse the funds after you pay some of the principal back, either. It’s similar to your first mortgage except it’s a second lien on your property.
The home equity loan also usually has more relaxed guidelines than the cash-out refinance because it’s a second lien. As long as you can afford the payment and you have a timely mortgage payment history for your first mortgage, you should be in good shape, assuming you have the equity to borrow.
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Like the HELOC, the home equity loan often has fewer fees as well, making it a more affordable option than the cash-out refinance.
Personal Loan
If you don’t have the equity in your home or you don’t want to touch it, you can apply for a personal loan. These loans are usually unsecured. This means your home isn’t at risk if you default on the loan. You can usually get a personal loan closed in a matter of a few days. The lender will verify your qualifying factors and then ‘close the loan’ by having you sign a few pieces of paper.
Personal loans are good for those that need a small amount of funds that they can pay off in the next 5 years. Personal loans typically don’t have terms much longer than 5 years because they are unsecured. Another upside to the personal loan is the lack of fees that the lender charges. You may pay a few fees, but they generally aren’t anywhere near what you’d pay on a cash-out refinance.
Miscellaneous Ways to Get Cash
If none of the options above works for you, there are always ‘outside of the box’ ways to get your hands on some extra cash:
- Sell old belongings – If you have items lying around your home that no one needs, sell them in an online garage sale or a site like eBay. What you consider ‘junk’ other people may consider a treasure and you can make a little money on it while you’re at it.
- Work overtime – If your job has the opportunity to work overtime, take it. You’ll get paid more per hour to do the same job, which can give you the extra cash in hand that you need.
- Start a side hustle – If you have any skills at all, you can likely make money online or in person. Today you can do just about anything from taking care of emails, doing someone’s grocery shopping, selling crafts, or working as a virtual assistant.
It’s possible to get your hands on the cash you need without touching your first mortgage. If you want your mortgage to stay where it’s at, consider any of the options above.
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