Are refinance rates too high? Here are 3 other ways to get cash out of your home
The low mortgage and mortgage refinance rates of 2020 and 2021 are long gone. After hovering around the 2% to 3% range during the height of the pandemic, rates have climbed exponentially since, the victim of stubborn inflation. The average 30-year mortgage rate was 7.62% as of August 22, with the rate on a 15-year refinance at 6.94%. And those rates could go higher, with the benchmark interest rate already sitting at a 22-year high.
Refinancing, in particular, has generally been a reliable way for homeowners to access cash by either paying a lower rate each month or by completing a cash-out refinance, in which owners get a loan larger than their current one and pocket the difference as cash. But current refi rates have made this option less feasible.
Fortunately, there are other ways to get cash out of your home without having to refinance to a higher rate than what you currently have. You can explore your home equity options here now to learn more.
3 ways to get cash out of your home without refinancing
Here are three reliable ways to access cash in your home without refinancing.
Home equity loans
Home equity loans are exactly what they sound like — loans on the equity you've accumulated in your home. These types of loans generally come with lower interest rates than other credit types, as your home will be used as collateral. The money you then get with a loan can be used for any legal purpose, although many use it to make home repairs and renovations.
By using your home equity loan this way, you'll be eligible for a tax deduction on the interest you paid on the loan. Considering that home values are high in many parts of the country currently — and that most lenders will let you borrow up to 80% of your existing home equity — you may be sitting on a significant cash reserve.
Explore your home equity loan options here to learn more.
HELOCs
A HELOC, or home equity line of credit, operates similarly to a home equity loan. Like home equity loans, the interest borrowers pay can be tax-deductible if used for IRS-eligible repairs and renovations. Lenders will also generally allow borrowers to deduct up to 80% of their home equity.
HELOCs, however, have variable interest rates, unlike the fixed ones home equity loans come with. That may still be favorable, however, because the interest you pay on a HELOC will only be for the amount you used — not the full amount you were approved for.
With a home equity loan, meanwhile, you'll pay interest on the full loan amount. Either way, if you need to access the cash in your home, a HELOC or a home equity loan offers favorable ways to do so.
Reverse mortgages
Reverse mortgages allow senior homeowners (62 and older) who have paid down most or all of their existing mortgage to then deduct a portion of that equity to use as they see fit. This is especially attractive because the income is tax-free — what you deduct is what you will get.
It will need to be repaid, however, if the homeowner dies or if the house is ultimately sold. Those two caveats could be worth it, though, if you're older, need cash and don't want to worry about the interest rates that come with home equity loans and HELOCs.
The bottom line
While high mortgage refinance rates have limited the options for homeowners looking to their home for cash, there are still alternatives worth investigating. Specifically, home equity loans and HELOCs could be good resources, especially considering the tax deduction they come with. And while reverse mortgages are limited to an older demographic, they could also be a viable option for seniors who need cash but don't want to pursue some of the higher interest rate options currently available.
