If COVID-19 taught us anything, it’s that we aren’t prepared for a disaster. No one could have predicted the millions of people that would lose their jobs or the complete shutdown of the economy. If you found yourself without enough money to get through this time, you may need some financial assistance.
While personal loans and even credit cards may be out of your grasp, if you have equity in your home, you have money waiting for you. It may be time to tap into it.
How to Get your Home’s Equity
With interest rates falling and the government stepping in to keep the mortgage industry fluid, now is a great time to tap into your home’s equity. You have a few options to do it:
- Cash-out refinance – You can refinance your first mortgage, taking out more than the current balance, and up to 80% of the home’s value. The cash-out refinance has slightly tougher requirements since it’s the first lien on your home. Lenders want to make sure you can afford the payments.
- Home equity loan – This is a second mortgage separate from the first. You can borrow up to the difference of 80% of the home’s value and the outstanding balance on your first mortgage. You receive the funds in one lump sum and make principal and interest payments on the loan right away.
- Home equity line of credit – This is another type of second mortgage. Like the home equity loan, it’s separate from your first mortgage and you can borrow up to the difference between 80% of your home’s value and your first mortgage balance. Instead of receiving the funds as one lump sum, you receive a ‘line of credit’ or an account with the funds in it. You can draw the funds as you need or leave them untouched. You only owe interest on the amount you withdraw for the first 10 years. In the 11th year, you pay back principal and interest and can’t draw on the line any longer.
Why you Should Tap into Your Home’s Equity During COVID-19
If you don’t need money you may wonder why you’d tap into your home’s equity. It’s simple. The equity is your emergency fund. If you experienced any financial issues during this time, you know all too well how scary it can be.
When you already have your home’s equity in a liquid account, you have access to emergency funds should you need them. While we all hope we’ll never see another crisis like this one again in our lifetime, no one knows for sure.
Tapping into your home’s equity is an affordable way to have access to emergency funds and offers the following benefits:
- Low interest rates – Most home equity loans have low interest rates and right now even cash out refinance rates are low
- Simple qualifications – You’ve already been through the mortgage process, so you know what to expect. If you have decent credit, equity in your home, and a stable job, you’re halfway to getting approved.
- Collateral makes it easier to get approved – Securing a personal loan or any other unsecured loan is difficult right now during these uncertain times. Lenders only want to lend to those that can repay their loan. A second mortgage, however, uses your home as collateral, so lenders can ease up on the restrictions, knowing that your home is on the line.
If you have financial uncertainties right now, but still have a job, consider tapping into your home’s equity. Your home is your largest investment and is there to help you through times like now. If you take the equity out and don’t use it, invest the money in stable investments, allowing the money to grow.
In the meantime, you can relax knowing that you have a nest egg should the economy or your job situation worsen as we navigate the unchartered waters of COVID-19.