Purchasing a home is a big investment. Not only is it a time consuming process, but it requires a good chunk of capital up front and over the entire amortization period. Many homeowners want to be able to access or leverage their home’s equity well before it’s ever paid off. The good news is that you don’t have to wait several years to utilize the worth of your home. Whether you already own your own home or are looking to purchase, here’s what you need to know about leveraging your equity.
Leveraging is using borrowed capital to increase the potential return on an investment. In layman’s terms, it’s using your debt to make you more money. The equity you have in your home is the amount your home is worth, minus how much you still owe. Let’s say you purchased your home at $300,000 and have paid off $50,000. Your home equity would be $250,000 as long as the market value has remained the same. Let’s say the market value increases by $100,000, your home equity would then be $350,000.
Home Improvements. Using your home equity for renovations is a great way to further increase the value of your home.
Consolidate Debt. Oftentimes bad debt like payday loans and credit cards have interest rates that are overwhelming. By leveraging your home equity against these debts, you can pay them off and take advantage of lower interest rates.
Invest in Real Estate. Leveraging equity allows homeowners to purchase investment properties without waiting for their current home to be paid off.
There are a few different options for those looking to leverage equity. If the house hasn’t been purchased yet, buyers can apply for a purchase plus improvements mortgage, you can learn more about that program here. Most often, home equity loans or home equity lines of credit are the main methods. Loans work by borrowing a set amount of money. Interest begins to accrue as soon as the lump sum is taken out. Home equity lines of credit, or HELOCs, work more like credit cards. You have a maximum limit you can access, but you take out the money as you need and interest is only applied to what you use.
Your house isn’t just your home, it is one of the biggest investments of your life. Use that investment to help you reach your goals, whether that’s gaining financial freedom, expanding your portfolio, or even getting the kids into a first rate university. If you’re ready to take a look at how your home can work for you, give us a call at 403-341-7800.
Source was absolutely great to work with - went above and beyond to help us get everything done when buying our new home. Highly recommended!! Chad and Jenelle Richards Jan 09 2013
Chad and Jenelle Richards
Added January 23rd 2013
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