Need cash? Look to your home

You don’t need to sell your house to generate cash. Several products can help you liquidate the equity you’ve built in your home: a cash-out refinance, a home equity loan or a home equity line of credit.

You can calculate your approximate equity by comparing the balance of your current mortgage with what your property is worth. For example, when you owe $150,000 on a $300,000 home, you have $150,000 in equity.

Cash-out refinance

Although refinanced mortgages are mostly associated with borrowers looking to change the terms of their loan, you can also use them to get cash. If you refinance your current mortgage for more than what you owe on the property, you can get the difference in cash—this is a cash-out refinance. Many home owners who need money for remodeling projects or college tuition decide to borrow the necessary funds and improve their loan’s terms at the same time with this loan product.

Home equity loan

Like your original mortgage, a home equity loan gives you one sum that you pay off over time. The term is usually shorter than your original mortgage loan—five to 15 years versus 30—and the interest rate is fixed, resulting in the same steady, monthly payments that you’re already used to.

A downside to home equity loans and cash-out refinances is that the amount you borrow is fixed. You can’t decide six months into the loan that you’d like a little more for better appliances or because your son or daughter needs to spend a semester abroad.

Home equity line of credit

With a home equity line of credit, you borrow what you need, when you need it, up to a certain amount during the time period set by the lender. A line of credit offers you more flexibility than either the cash-out refinance or the home equity loan; however, a home equity line of credit has a variable interest rate, so payments will vary depending on the interest rate and how much credit you have used. When the line of credit expires, you pay off the balance.

The best way to cash in your equity is …

If you know you need $50,000 for college tuition, a loan or refinance and its fixed-rate certainty might be the best choice. But if you’re embarking on a large remodel and need flexibility for changing scope, a line of credit could be a good fit.

Talk to your lender about the closing costs and interest rates associated with each choice. A refinance might give you a low interest rate but high fees, while the converse could be true for the line of credit.