You finally own your home free and clear and want to put that equity to use — without having to sell. Is this even possible?
Fortunately, the answer is yes. If you qualify, you could obtain a home equity loan on a paid-off house, or a home equity line of credit (HELOC) or reverse mortgage — or, you might opt for a cash-out refinance or shared equity investment. Each has its pluses and minuses.
Can you take equity out of a paid-off house?
You can take equity out of your home even after your mortgage is paid off. One of the easier ways to do this is to sell your home, but there are also financial products that allow you to extract equity from your paid-off home quickly without having to pick up and move.
“It is definitely possible to take equity out of your home after you’ve paid off a previous mortgage,” says Jeffrey Brown, branch manager with Axia Home Loans in Bellevue, Washington. “Assuming you qualify, you can access that equity at any time.”
Reasons to tap equity on a paid-off house
Why would anyone pursue fresh financing after finally paying off a mortgage? There are many viable reasons, from funding a home improvement project or investing in a business to purchasing more property. Two good rules to follow: Use your equity for long-term projects that create more value than the cost of the loan, and don’t take out more than you can afford to lose.
“Many seek to pay for their children’s educational expenses, fund their retirement or pay for an unexpected medical emergency like cancer care for a loved one,” says Kelly McCann, an attorney specializing in construction and real estate with Burnside Law Group in Portland, Oregon.
There are also not-so-good reasons to draw from your equity, such as buying a car (a depreciating asset), paying for a wedding or taking a vacation. It’s important to get clear on your goals so you’re making a sound financial decision.
How to get equity out of a paid-off house
Cash-out refinance on a paid-off home
Let’s say you were still paying off your mortgage, had adequate equity and needed cash. You’d likely do a cash-out refinance, which typically has a relatively lower interest rate compared to other types of loans.
You can do the same now, even though you’ve paid off your mortgage. You’ll simply take out a new mortgage and pocket equity in the …….
Source: https://www.bankrate.com/home-equity/get-equity-paid-off-home/