Equity represents the portion of your home that you truly own. As you make mortgage payments and the value of your home increases, your equity grows, which can be a significant source of wealth over time. However, a home is also an illiquid asset, as the only way to realize your gain is to sell, and selling a home typically involves a lengthy process that can take weeks or even months.

When people need to tap into the equity in their home, most consider a cash-out refinance, in which a homeowner refinances their mortgage for an amount greater than the existing loan balance, taking the excess cash in the form of a lump sum. Alternatively, they may explore a home equity line of credit, a type of revolving credit that allows homeowners to borrow against the equity they have in their homes. It functions as a line of credit secured by the value of the home.

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William G. Lako, Jr., CFP®, is a principal at Henssler Financial and a co-host on “Money Talks”—your trusted resource for your money, your future, your life—airing Saturdays at 10 a.m. on AM 920 The Answer. Mr. Lako is a CERTIFIED FINANCIAL PLANNER™ professional.

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