Ways to Use Your Home Equity

Have you built up a lot of equity in your home? Home equity is the difference between the value of your home and how much you still have left on your mortgage. If you purchased your home several years ago, you just may be sitting on a pile of available money! For example, if you have a home valued at $500,000, and you have $300,000 left on your mortgage, your equity is approximately $200,000.

Right now, your home's value is likely almost as high as it ever has been, so it's an ideal time to do something with all that built-up equity. Below are several ways you can use your home equity to your advantage. Keep in mind that using your home's equity will be combined with your mortgage principle amount and will be paid off over the full loan term.

Buy a new house

If you're equity is so high, your potential sale price could be also. This allows you to really focus on your current home needs, which may have changed since you originally bought your house. You may be looking to get something bigger, or on the other hand, maybe you want to downsize your house to reduce your monthly overhead and payments. The beauty of the housing market right now is that, no matter why you might want to sell or buy, you are likely to maximize your home's value, and that's always a good thing.   

Turn equity into cash

There are a few ways that you can turn that equity into funds that you can use for whatever you want. 

One is a Home Equity Conversion Mortgage (called a HECM). This type of loan enables homeowners and homebuyers, age 62 years old or older, to convert a portion of their home equity into cash or a line of credit. With a HECM mortgage, you can choose not to make monthly principal payments. You continue to live in and own your home.

Another option is a Home Equity Line of Credit (called a HELOC).With a HELOC you borrow against the equity of your home using the home itself as collateral. In addition to the built-in convenience of a HELOC, what you borrow is not considered taxable income, since you are in effect borrowing money from yourself and not seeing an increase in your earnings. 

A third option is to do a cash-out refinance of your home. This allows you to take cash out of your loan. This is ideal if you've been in your home a while, as you likely have plenty of equity to pull out. This often has the side-effect of raising your mortgage payment, but you may be pleasantly surprised at just how much you can take out of your loan for only a nominal increase in your monthly budget.    

Make renovations and/or improvements

The high costs of remodeling your home or making significant improvements to the property are not always within the day-to-day budget for most homeowners. Tapping into your equity for this purpose allows you to unlock any number of possibilities that might be otherwise out of reach. Are you wincing every day when you have to deal with an old kitchen or bathroom?You could give your kitchen a top-to-bottom refresh, from appliances, countertops, cabinets and everything in between. The same goes for the bathroom by installing new sinks, a tub or completely rebuilding your shower.

Is saving on energy costs a priority? You could use the money to install solar panels, replace old siding, add insulation, replace old windows and update your HVAC system. Looking to make your curb appeal better or increase your enjoyment of your yard? Add fencing and upgrade your landscaping. Maybe even install a custom deck or patio and a pool! Your home's equity can bring these dreams of home improvement to life.  

Buy a second home

You might find that your existing equity is enough to help buy a whole other property, either in full or in part. A second home could be a great investment if you want to be near family, or if you find yourself paying for a vacation rental in the same spot every year. And you could always use that second home for income opportunities as well. Post it online for short-term vacation rentals, so it's available when you need it yourself, and earning money for you when you don't. Or you could rent it out to tenants on a more long-term basis so that you have a constant revenue stream coming your way.

Are you very handy or do you have family and friends in the trades? If so, you might want to buy a house for the purposes of flipping it for resale. Considering the record-breaking housing prices we're seeing, leveraging your equity could potentially be a lucrative path to follow. 

Purchase other equities

Speaking of investing, you could always use your equity to purchase stocks, bonds or fund new business ventures. The investment opportunities are virtually unlimited when you have a ready amount of capital that can be brought to bear on one or more of these opportunities. Of course, there are no guarantees when it comes to making investments, but the potential rewards can be great indeed.

Other ways to use equity

• Zeroing out credit cards: Credit balances can accumulate over the course of your financial career, sometimes slowly, sometimes quickly in times of emergency. When paying the minimum payments just isn't enough, you can balance the scales quickly. This is especially true of a Cash-Out refinance loan, which will likely have a much lower interest rate than credit cards, saving you a significant amount over time.
• Removing student debt: Student loans can take a long time to pay off, just ask almost any college graduate! Depending on the type of loan, you could easily wind up paying far more in interest than the original loan amount. Equity can wipe away the debt, saving you a significant amount in the long run.
• Funding college tuition: It's never too early to start planning for college. Your equity could help guarantee education expenses for your children, or for you if you should find yourself going back to school later in life. You could save yourself the hassle and expense of having to take out student loans.
• Planning for emergencies: Life happens. You can never be sure when the universe might throw you a curve ball that will be much easier to manage with a sufficient number of resources at the ready. By building up a robust emergency fund with your equity, you can give yourself a financial cushion to soften the bumps and scrapes along the way.  
• Paying off medical bills: You could reduce, or even eliminate, your existing medical bills. Whether it's bills that have built up over time, or elective medical procedures, such as braces, corrective or cosmetic surgery, your equity could make that a reality without having to take out a separate loan that may have a higher interest rate.

There are so many ways you can turn your equity into something real and tangible, improving a number of areas of your life. While you should always consult with a mortgage professional or financial advisor before making major money moves, the most important choice here is in deciding how you want your home's equity to work for you.

Get in touch and we'll get you started!