How to make the most of your home equity

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Home equity is a valuable asset that can be used to finance your dreams. 

This blog post can teach you how to make the most of your home equity and use it to your advantage.

As a homeowner, there are multiple ways to grow your net worth. One great option is leveraging the equity you have in your home. By accessing the equity you’ve accumulated over time, you can get cash to invest in property, start a business, pay off high-interest debt, or work towards other financial goals.

Before we deep dive into key takeaways of how to make the most of your home equity, let’s make sure we cover the basics first. 

You need to know how much equity you have available. To determine the amount of equity available to you, subtract your current mortgage balance from your home’s present value. This is also another reason why it’s important to stay on top of your property’s value and we advise you to get a property valuation every year.

Understanding mortgage equity

Mortgage equity is calculated as the difference between the amount you owe on your mortgage and the current value of your property. In simple terms, equity represents the portion of your home that you actually own. It includes the sum you have paid towards your mortgage, as well as your initial deposit. 

If the value of your home has increased since you purchased it, your equity will include the difference between the original price and its current value. As you continue to pay off your mortgage, you will gradually build up equity. Each monthly payment contributes to the growth of equity in your home.

How to build home equity

Increasing the equity in your home can lead to several benefits such as having the flexibility to purchase a more expensive property in the future, and reducing the risk of negative equity.

There are lots of ways the equity in your property can increase however the top 3 are:

  • Consistent mortgage payments to reduce your outstanding balance.
  • Increasing property value due to rising local house prices.
  • Making home improvements to enhance the value of your property, which in turn increases your equity.

How to use home equity to your advantage

Popular uses include home improvements, debt consolidation and generating retirement income. 

Once you’ve established how much home equity you have, the next step is to specify your financial objectives. What do you want to achieve with your home equity? Do you want to pay off debt, invest in further property, or even start a business? By defining your financial goals, you’ll be able to make informed decisions on how best to use your home equity.

In the right circumstance, consider products such as a home equity loan or a home equity line of credit HELOC as these can be a valuable resource to help make the most out of your home equity. For a lot of individuals, their home is their greatest asset, so having a way to access that equity without selling the property can be quite attractive. HELOCs are not intended for minor expenses which is a key difference between alternatives like credit cards.

Both home equity loans and HELOCs are secured loans using the equity in your home as collateral. Lenders find these loans more appealing than unsecured debt like credit cards or personal loans, as they have a lower risk of default. Thanks to the lower risk, lenders are able to provide competitive rates for home equity products. Compared to other options like credit cards, borrowing against home equity is usually one of the most economical options available.

Additionally, Lifetime Mortgages are becoming increasingly popular but are only available to homeowners that are aged over 55 years old. 

Just like any financial products on the market, you need to do your own research regarding rates and terms, and there will be a qualifying process to go through too. Using your home equity is a significant financial decision that should not be taken lightly and we advise you to speak with our trusted mortgage advisors before committing to anything.

While there are many benefits of using your home equity, it’s a significant financial decision that should not be taken lightly. It’s essential to exercise caution when using home equity and should not be treated as another credit card.

Speak to our mortgage advisors who will be able to help you and provide up to date information to guide you through the process best suited to your circumstances. Get in touch with the team today here.
Your home may be repossessed if you do not keep up repayments on your mortgage.

 

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