The Right Time to Tap Home Equity

Do you think that you're sitting on a gold mine? If the value of your home has grown at dizzying speeds over the last few years, and your equity balance is looking juicy, it may be time for some prospecting. But is your timing right?

You Need It

If you have a major home improvement project, unexpected medical expenses, or lofty plans for your child's education, the equation is simple. After maxing out better options like Stafford loans for education, or secondary insurance plans for medical needs, it's just a matter of whether your home equity has grown enough to cover your needs. A home improvement loan or other second mortgage should fit, and foot, the bill.

For large expenses, when you know exactly how much money you desire, a home equity loan is often the best option. A HELOC can be a better choice when your expenses are spread out over a longer period of time in smaller increments. With a fixed-rate home equity loan, you're paying interest on the entire loan balance from day one. With a HELOC, you only pay interest on your current balance-not on the entire credit line available to you.

You Want It

If you don't have any pressing financial needs, but just want to lock in some of your real estate profits, you have a tougher decision to make. Home equity loan rates have been rising over the past few years, and you might want to lock in a lower rate now if you think the trend will continue. A fixed-rate home equity loan will do the job, whereas an adjustable-rate HELOC will do better in times of shrinking interest rates.

On the other hand, home values haven't stood still, either. You might get more money out of your property if you wait another year or two. Then again, you could take the plunge today, and refinance your home equity loan later on, if things look better.

Analyze your situation, and determine how you'd like to pay off the credit line. This could be the perfect time to apply for a second mortgage. There's no time like the present, especially if there's gold in "them thar hills!"