Homeowners have options to cash in on high equities

Kenneth R. Harney

Not all of this can be turned into spendable cash. Only roughly $5.4 trillion is “tappable,” according to data analytics and software firm Black Knight. That is, it could be extracted by owners using loan types that require borrowers to retain at least 20 percent equity after a transaction.

There are three primary ways to access the equity:

• Home-equity line of credit. This is a credit line secured by your home equity that allows you to withdraw amounts you need whenever you choose.

If you want to use the line of credit for anything other than home improvement or purchase, your interest payments won’t be deductible under new tax rules.

• Cash-out refinancing. This involves replacing your current first mortgage with a larger one, allowing you to pocket the additional funds. A downside here: The loan you exchange is likely to cost at least one percentage point more. Check with a tax adviser about what is deductible if your new total debt exceeds the amount of your original mortgage.

• Home-equity loan. These are traditional second mortgages and come with fully amortizing fixed rates currently in the low and mid 5-percent range and higher, depending on your credit. Note that these loans have the same tax restrictions as lines of credit if you want to deduct the interest.