How Much Equity Can I Borrow?

Homeowners have multiple avenues to access their home's equity, each with varying borrowing limits and terms.

Cash-out refinancing is a popular choice, allowing access to up to 80% of the home's equity. This method involves refinancing the existing mortgage for a higher amount than currently owed. The difference between the new loan amount and the existing mortgage balance is received as a lump sum of cash. However, the borrowing limit is typically constrained by the lender's criteria, the property's appraised value, and the homeowner's creditworthiness.

HELOCs (Home Equity Lines of Credit) offer another flexible option, enabling homeowners to borrow up to 90% of their home's value. HELOCs provide a revolving line of credit, similar to a credit card, allowing borrowers to withdraw funds as needed within a predetermined draw period. The amount available through a HELOC depends on factors like the home's value, existing mortgage, credit score, and the lender's policies. Borrowers can use the funds for various purposes and only pay interest on the amount withdrawn.

Closed-End Second Mortgages, often referred to as CES or Home Equity Loans, grant a fixed amount of money, typically up to 90% of the home's equity. Unlike a HELOC, CES disburses the borrowed sum as a lump sum payment upfront. The repayment occurs in installments over a set period, with a fixed interest rate. These loans are beneficial for specific one-time expenses or projects and are influenced by factors similar to those for other equity-based loans.

The borrowing limit for each of these options relies heavily on the property's appraised value, the remaining mortgage balance, the lender's policies, and the borrower's creditworthiness. Homeowners should carefully consider the terms, interest rates, and repayment schedules before choosing the most suitable option to leverage their home's equity.