Are you a homeowner who has been paying your mortgage for a while? If so, you may have accumulated a significant amount of equity in your property. Equity is the difference between your home’s current market value and the amount of money you still owe on your mortgage. With home prices skyrocketing these past few years, you may have more equity than you think. According to the latest Equity Insights Report from CoreLogic, the average homeowner today has over $274,000 in equity! So, how can you use your home equity to achieve your financial goals? In this blog post, we’ll discuss four ways you can use your home equity to your advantage.
In a recent article, Bankrate elaborates:
“While the pandemic created serious challenges, the silver lining for anyone who owned a home was the sizable equity gain. Understanding how home equity works, and how to leverage it, is important for any homeowner.”
1. Home Renovations and Improvements
One of the most popular ways to use your home equity is to make renovations and improvements to your property. If you’ve been dreaming of a new kitchen or bathroom, or you need to replace your roof or windows, using your home equity can help you finance these upgrades. Home equity loans and home equity lines of credit (HELOCs) are two common ways to borrow against your home’s equity. With a home equity loan, you receive a lump sum of money and then repay it in fixed monthly payments over a specific period. With a HELOC, you have a line of credit that you can draw from as needed, similar to a credit card.
2. Consolidate Debt
Do you have high-interest credit card debt or other loans you’re struggling to pay off? By using your home equity to consolidate your debt, you can save money on interest and simplify your payments. You can use a home equity loan or HELOC to pay off your debts, then repay what you owe over time at a lower interest rate. However, keep in mind that if you’re unable to make the payments, you could risk losing your home.
3. Invest in Real Estate
If you’re interested in real estate investing, using your home equity could be a smart move. You could use your equity to purchase an investment property, or you could finance renovations and improvements on a rental property. This strategy can help you build wealth and diversify your investment portfolio. However, investing in real estate carries risks as well, and it’s important to do your research and consult with professionals before investing.
4. Recognize Your Options to Avoid Foreclosure
There’s no need to worry about a flood of foreclosed homes hitting the market because the number of foreclosure filings today is still below average. But regrettably, the foreclosure process still affects some homeowners each year. Knowing your options and how your equity can be helpful if you’re having financial problems is essential. Equity can serve as a financial safety net that can be used in the event of unforeseen difficulties or events that might prevent you from being able to make your mortgage payments on time.
Freddie Mac explains it in an article in the following manner:
“If exiting your home is the best option for you, selling with equity may be a good option. When selling with equity, you are using the proceeds from selling your home at a higher price than the amount you owe on your mortgage to pay off your remaining mortgage debt.”
5. Fund Education Expenses
Education is becoming increasingly expensive, and many people are struggling to afford the costs of higher education. If you or your children need to pay for college, using your home equity could be a solution. You could use the funds to pay for tuition, textbooks, and other college expenses. Home equity loans typically offer lower interest rates than student loans, making this an attractive option for many families.
As you can see, there are many ways you can use your home equity to achieve your financial goals. Whether you want to renovate your home, consolidate debt, invest in real estate or fund education expenses, borrowing against your equity can be a smart move. However, it’s crucial to weigh the risks and benefits of each option and make a well-informed decision. Be sure to consult with financial professionals and choose a lender that offers competitive rates and terms. With careful planning and smart investment, your home equity can help you achieve a brighter financial future.