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According to the Federal Reserve Bank of New York, the number of Americans tapping into their home equity lines of credit (HELOC) has risen around 20% since bottoming out in the third quarter of 2021. Bankrate Analyst Jeff Ostrowski joins Wealth! to break down some of the ways homeowners can tap into home equity.

Ostrowski explains that the traditional way to tap into home equity was through a cash-out refinance, where you "refinance your mortgage for more than you borrowed on the original mortgage. You pay off the first mortgage. You get a check for $50,000 or $100,000, or however much it is that you want to pull out of the home." He notes that this option has "pretty much disappeared" because many homeowners are not refinancing given the current mortgage rates. Thus, cash-out refinances have been largely replaced by home equity loans and home equity lines of credit.

He notes that one of the pros of home equity lines of credit is that interest rates are lower than credit cards. "Definitely cheaper than credit card debt, certainly more expensive than mortgage debt, but you are able to just keep that 3% mortgage or 4% mortgage in place and untouched, and then tap into your home equity through a home equity loan, home equity line of credit," he explains. However, home equity lines of credit do come with variable rates, which could be a downside for some homeowners.

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This post was written by Melanie Riehl