Homeowners have four options for tapping into home equity:
Secured personal loan: A loan that requires some type of collateral, typically your house, to secure the loan. The collateral serves as a guarantee to the lender that they will be able to recover their money if you are unable to repay the loan. This option may be preferable if you’re looking to borrow a smaller sum of money quickly but want a lower interest rate than offered on an unsecured personal loan.
Second mortgage: A lump-sum loan based on the amount of equity you have in your home. The loan is paid back over a set period of time, with fixed monthly payments. A second mortgage may be preferable if you need to borrow a large sum of money, such as for home renovations or debt consolidation, but don’t want to adjust your existing mortgage.
Home equity loan of credit (HELOC): A revolving line of credit that allows you to borrow up to a certain limit, pay back the borrowed amount and then borrow again as needed. This option may be preferable if you need to access money on an ongoing basis for home repairs or unexpected expenses.
Cash-out refinance: A type of mortgage refinancing that allows you to refinance your existing mortgage and take out additional cash in the process. This option may be preferable if you want to lower your interest rate or change the terms of your existing mortgage while accessing home equity, but you only want one mortgage.