According to the Federal Reserve Bank of New York, the number of Americans tapping their home equity lines of credit (HELOC) has increased by about 20% since hitting a low point in the third quarter of 2021. Bankrate analyst Jeff Ostrowski explains some of the ways homeowners can access their home equity in Wealth!

Ostrowski explains that the traditional way to tap into home equity was a cash-out refinance, where you “refinance your mortgage loan for a higher amount than you took out on the original mortgage. You pay off the first mortgage. You get a check for $50,000 or $100,000, or however much you want to get out of the house.” He notes that this option has “all but disappeared” because many homeowners aren’t refinancing given current mortgage rates. As a result, cash-out refinances have largely been replaced by home equity loans and home equity lines of credit.

He points out that one of the benefits of home equity loans is that the interest rates are lower than credit cards. “Definitely cheaper than credit card debt, certainly more expensive than mortgage debt, but you can just leave the 3% or 4% mortgage as is and then access your home equity through a home equity loan or home equity line of credit,” he explains. However, home equity lines of credit come with variable interest rates, which could be a disadvantage for some homeowners.

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This article was written by Melanie Riehl