Home equity refers to the percentage of your property that you actually own. You can calculate your home equity by taking the current value of your property, and subtracting the remaining balance on any mortgages or loans you have attached to it. If you are currently dealing with some financial issues, then tapping into your home’s equity is a commonly used method to get financial relief.
Home equity is something that every homeowner should be aware of. Therefore, in this article, we will discuss the best ways to get the most out of your home equity.
What is home equity, and how can it help you?
Home equity refers to the percentage of your property that you have already paid off. As long as you continue to make your monthly mortgage payments on time, your home equity will continue to increase.
Placing a large down payment on your home will also accelerate the rate at which you build equity. If you qualify, then you will be able to tap into the equity that you have accrued over the years in order to consolidate debt or make improvements to your home.
Borrowing against the value of your property may allow you to pay off your debts quicker or upgrade your home in order to increase its curb appeal and real estate value.
In fact, the money that your lender provides you via a home equity line of credit or home equity loan can be put towards virtually anything that you want. Also, because the loan is secured, the interest rate will be lower than what would be charged on a credit card.
Moreover, you may be able to take advantage of certain tax benefits if the money borrowed is put towards home renovations to your property.
How to Make the Most of Your Home’s Equity
A home equity loan may be the right choice if you know exactly how much you need. For example, if you simply want to consolidate your debts, then a home equity loan may be the best option. The term and interest rate will be fixed, and you will be allowed to borrow a certain amount based on your home’s monetary value.
A home equity line of credit may be the better option if you want to remodel your home, as unexpected expenses may arise in the future as you continue to renovate. A home equity line of credit is a revolving form of credit. You will only pay interest on the amount that you actually use, and the balance can be paid off whenever you want without having to worry about any prepayment penalties. You can draw money from your home equity line of credit anytime you need it, making it highly flexible, which is great if something ends up costing more than you expected.
A cash-out refinance is also something to look into. With a traditional refinance, you will be taking out a new loan that has better terms than your current one. The new loan that you take out will pay off and replace your original loan.
With a cash-out refinance, however, you can get a new mortgage for the same percentage of home equity, but with extra cash to compensate for its growing value since your last mortgage. If your home grew from $800,000 to $1 million, your cash-out refinance will replace the remaining balance on your original loan, and pay you for the extra home equity you have acquired. You are restarting your mortgage but with much more cash-on-hand than you did before since your home has grown in value.
The money can be used for virtually anything that you wish. Here, your home equity will determine how much you can borrow, with most people being able to borrow up to 90% of their property’s value.
A reverse mortgage is yet another option. It is basically a loan that allows you to obtain funds from your home equity without having to actually place it on the market. Your lender will pay you for your home equity, while you still live in the home. You will be able to borrow up to a given portion of the present worth of your property, and you won’t have to pay it back until you move, sell the house or give it to family members.
What is the best way to tap into home equity?
You can use the money in order to consolidate your debts, allowing you to simplify the debt repayment process by making one monthly payment instead of many. The total interest that you pay will also usually be lower when you combine all of your debts.
You can use the money in order to start a new enterprise, and can also use it to fund said business. The money can be put towards renovating your home, or setting up an emergency fund.
Additionally, the money can be used to pay off student loans, or even fund the wedding of your dreams. If you are looking for the best way to tap into home equity, then speaking to a financial expert with real estate experience in Ontario will help you make a fiscally sound decision.
Making the Right Decision
To sum up, building home equity serves as a safety net and may help you get out of fiduciary distress in the future. In order to quickly build home equity, you should put down a larger down payment. Improving the value of your home, by making home renovations, will also quickly build equity.
Finally, paying more on your mortgage will accelerate the equity-accumulation process. For example, you can use your tax refund, work bonuses, or money received as gifts in order to help pay off your balance.