Most people wouldn’t think of their home equity as a form of savings that can be used just like cash, but if you know how to tap your equity, you can make it work for you and improve your financial situation.
Using Your Home Equity
Your home equity is the value of your property that you own. You can easily have an estimate of it by subtracting what you still owe from the current market value of your home. The better the market value of your home and/or the less you still owe in your mortgage, the larger your home equity!
A great thing about your home equity is that you don’t have to sell your home in order to access it. Once you have a good percentage of your home’s value as your equity, you can apply for a home equity loan and use the approved loan to improve your home’s value (with upgrades and renovations), to pay for a degree (to improve your income potential), or to invest in other opportunities.
The secret is in using your home equity in a way that helps you attain your financial goals. The 3 common ways to use your home equity for cash are through a HELOC, a second mortgage, or via mortgage refinancing.
Using a Home Equity Line of Credit (HELOC)
A HELOC is the secured loan you’ll want to get if you want to use your home equity for a recurring expense that you may not be able to finance just by trying to save for it (like tuition for university studies).
A HELOC is a revolving line of credit that allows you access to funds as you are able to pay them back until a time limit or value limit is reached. It is very flexible and is wallet-friendly considering that you’ll only have to pay interest for the amount you borrow. A possible issue is the fact that the interest rate is often variable too, leaving those who are not very savvy with money a bit confused come payment time.
Using a Home Equity Loan or a Second Mortgage
Although often mistaken to mean the same as a HELOC, a second mortgage is a totally different type of home equity loan. For one, funds are received in a lump sum and a one-time deal until the loan has been paid off. The monthly payments and interest rate are fixed amounts as well – which is the opposite for a HELOC.
A second mortgage is ideal for funding a very expensive home renovation or a much needed debt consolidation plan. Just like a HELOC, a second mortgage is paid on top of a primary mortgage; hence, having a clear picture of your financial situation is best before applying for one and risk losing your home for non-payment.
Using Mortgage Refinancing
A refinance means breaking your existing mortgage contract and creating a new one with the benefit of giving yourself access to your home equity while doing so. Another benefit is that a refinance allows you to get better terms although you’ll have to trade it with some of your equity. Not a bad bargain if you’re strapped for cash and need access to funds in a cheap and relatively easy way.
Building your assets can be a lot easier if you can make your existing assets do the heavy lifting for you. Contact us if you wish to discuss possible ways of using your home equity for investment opportunities. We’d be happy to help you apply for a home equity loan!