What Are the Benefits of Cashing Out?

Are you looking at financial portfolio and noticing the amount of equity in your home? Thinking of pulling out some of that equity in the form of cash? As the value of a property someone owns so too does the amount of equity the person owns. The equity is the difference between the current market value of the property less the liens and closing costs associated with a new loan. There are three ways to pull out equity in your property, a HELOC, an equity loan and a cash out refinance.

A HELOC is revolving line of credit based partly on the value of the home.  A HELOC transfers equity into cash and can be used over and over again. A HELOC will have slightly higher rates than other cash out programs but is reusable very similar to credit line on a credit card. An equity loan is a lump sum amount issued to the owners and can be taken with either fixed or variable rates. A cash out refinance is a loan that replaces an existing loan while simultaneously turning some of the equity in the property into cash at the closing table.

What are the benefits of cashing out your home equity?

Equity in your home is an asset yet it�s not very liquid. It�s not like a cash or a deposit account as there are some things you need to do to turn equity into cash, namely one of the three methods previously mentioned. You can benefit cashing out when you pay off other debt with less favorable terms. Say you have a car loan with an interest rate of say 6.0% and a monthly payment is $650. A cash out refinance can greatly reduce that monthly payment with a lower rate and extending the term.

You can also tap into your home equity to take care of bigger expenses without having to use the cash you have in the bank. If you want to preserve your liquidity and you have access to your home equity you might think of tapping into that equity instead of hitting your bank account.

Also consider a credit card balance of $15,000 with an interest rate of say 15%. A cash out refinance, equity loan or HELOC will provide much better terms. Note however there really isn�t much of a benefit if a credit card balance of $15,000 is paid off yet within a matter of months the credit card balance has returned.

Finally, interest on mortgage debt can be tax deductible, further increasing its value. Not, when making any financial decision where income taxes are a consideration, you should first speak with your financial planner or CPA before you speak with a loan officer.

For more information or questions about mortgage loans,

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