Getting Money From Your House - Home Equity

You can borrow against the equity in your house without suffering the hassle of a conventional second mortgage. Instead, many banks and brokerages offer a homeowner's equity account. An independent appraiser values your house, and then you can usually borrow up to 80% of your equity in it. You must borrow at least $ 1,000 and are likely to pay an interest rate about 1 % to 2 % above the prime rate, which is lower than the usual charge for second mortgages. There is no penalty if you pay off your loan early. This type of loan is good for financing a child's education or an addition to the house. But because the funds are so accessible, beware of using a homeowner's equity account for risky investments. If you lose all your money, you lose your equity in the house, too! If you are a retired homeowner, you can get monthly income from your property and still live in it. Look into a so called reverse mortgage. It lets you borrow against your house and collect the loan proceeds minus the interest in the form of monthly payments. This goes on for a limited period, typically seven years. At the end of the term you have to pay off the loan, which can mean selling the house. Then there's the shared appreciation reverse mortgage. It assures you of income for the rest of your life or until you move. In one variation, you take out a loan against your house and pledge to give the mortgage company 50% or 100% of any future appreciation on the property, the more you pledge, the higher the monthly payments you collect. When you die, the mortgage company sells the house. The company then keeps the agreed on share of any appreciation, plus an amount equal to all the monthly payments it made to you. Anything that is left over goes to your heirs.