How to access the dollars in your home equity

I caught my first ever red snapper the other week.  It was delicious!

Depending on when you bought your house, you may have a good amount of equity stored away in it.  The issue is, it’s not like a bank account where you can just make a withdrawal - the money is locked away and you can't do anything with it.

Since that sucks, let me share four ways to access that equity: I'll cover two today and two in our next email and let you know what I like and don't like about each.  Careful, this gets math heavy!

The first one is called a cash-out refi (short for refinance).  This is where you pay off your existing loan and get a larger loan, putting money in your pocket. Say your house is worth $500k and you still owe $300k on your current mortgage. You can get a cash-out refi for up to 80% of the home value, so $400k. With this new loan of $400k you'd pay off the old mortgage and put $100k in your pocket.

Watch out though - you now have a larger loan, and depending on when your original loan was made, the new loan could have a much higher interest rate. You’ll definitely have a higher payment, and you're locked into this loan and payment until you either sell the home or refi again.  This kind of deal could be fine if you have a longer-term use for that equity and you're okay with the new payments

The second one is a home equity loan or a second mortgage.  If we’re talking about the same $500k home, what this means is you would leave the original $300k mortgage in place and instead just get a second loan for $100k.  This is a great option, especially if you had a lower interest rate on that $300k loan. Note that the rate for this second mortgage is going to be higher because you already have a first mortgage in place.

I personally think this is usually the better way to go but I would caution anyone to make sure they have a solid plan to pay back that second loan since they'll be paying higher interest on it

These are two solid options, but I’ll have more (and maybe better) options for you next week.

PS.  Did you know that historically, Labor Day is the best time to buy a home in the Austin area?  Follow me on instagram at @grgrgregory or @gregorygrouptx for more hot tips like this :)