Often times the best way to get money is to borrow it from yourself.
When in need of money, it is possible to borrow money against the current equity in your home.
Borrowing against your home equity
As home prices rise and you pay down your mortgage the difference between the loan amount and the homes current value is equity. You can tap into your equity by refinancing your mortgage or adding a second mortgage to borrow more funds from your home. There are many reasons why borrowing against what you have is better than taking on a separate loan due to the fact that the money is technically already yours.
Benefits of MEW (Mortgage Equity Withdrawal)
Mortgage equity withdrawal, or Cash-out, has advantages over other types of unsecured loans. Compared to unsecured loans (such as credit cards/revolving credits), MEW has lower rates due to the fact that the bank can use your home as the collateral. These types of loans can be used to consolidate your outstanding credit card balances which generally carry much higher interest rates (9% – 25%).
Adding a second mortgage, the interest rates can be fixed or adjustable.
A fixed rate loan requires a monthly payment where you will pay down the loan balance over time.
The adjustable loan is a credit line and you will only pay interest if you use it, typically interest-only. The rates will vary depending on the prime rate.