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Understanding If Converting Equity to Cash Is Right for You

Understanding If Converting Equity to Cash Is Right for You. What Is Home Equity?. The difference between what your house is worth and the amount you owe on it. Using Home Equity. Cash-out refinance Home-equity loan Home-equity line of credit Reverse mortgage.

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Understanding If Converting Equity to Cash Is Right for You

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  1. Understanding If Converting Equity to Cash Is Right for You

  2. What Is Home Equity? The difference between what your house is worth and the amount you owe on it.

  3. Using Home Equity • Cash-out refinance • Home-equity loan • Home-equity line of credit • Reverse mortgage

  4. Common Reasons for Using Home Equity • Making home improvements • Paying for education for your children • Paying for education for yourself

  5. Common Reasons for Using Home Equity • Consolidating debt • Making investments

  6. Determining How Much Home Equity You Have • Outstanding loan balance • Contact loan servicer • Home’s market value • Contact local tax assessor • Contact local real estate professional • Hire an appraiser

  7. Calculating Home Equity $150,000 home value

  8. Which Product Is Right for You? • Cash-out refinance or long-term home-equity loan for a lot of money to repay over a long time period (e.g., home improvement project) • Home-equity loan for a large amount of money for immediate use and no additional borrowing (e.g., pay a large medical bill) • Home-equity line of credit for things that will take time and require multiple payments (e.g., college tuition over four years)

  9. Important Considerations • How much equity do you have in your home? • How will borrowing more money affect your home equity? • What LTV ratios do local lenders use for different loan products?

  10. Important Considerations • How will borrowing against your home equity affect your payments? • What interest rates do lenders charge for different loan products? • Do any of the loan products require a lump-sum payment in the future?

  11. Important Considerations • What are the up-front costs associated with different loan products? • What are the loan terms for different loan products? • How will borrowing against your home equity affect your tax deductions?

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