Good news! Since you’ve been living in your house for several years, its value may have increased. The increase could be due to several reasons, but the end result is that an increase in value means that your mortgage balance is likely to be less than how much your house is worth. That means you have built home equity.
The two main reasons there is a greater difference between the value of your home and the current balance of your mortgage are:
- You are consistently making payments, which reduces the outstanding principle balance.
- You snagged a home on a piece of property that has increased in market value since your purchase.
Either way, you are reaping benefits of living in an up and coming neighborhood, or paying down your mortgage balance. The difference between the value of your home and what you owe on it is growing wider.
The point is, as the gap widens, the equity in your home is growing. That equity is cash you might have available to you for whatever purpose you have. How do people spend that money? It depends on the person and their circumstances. Here are a four of the most common:
No. 1 Home Equity Use: Home renovation
After years of family living, a home might start to feel a little worn and used. Or, perhaps the appliances are showing their age or out of date. Or, as is often the case, your family has grown and you need more space. Instead of putting your house on the market, a facelift, expansion, or update might be the solution for you. Updating the house, adding on, or even installing new technology not only makes things feel new and fresh, but could add to the value of your property as well. Then, when you decide to sell and relocate, you have an even more valuable asset.
No. 2 Home Equity Use: Debt reduction or consolidation
Are education loans, car loans, and credit card bills weighing heavily on your shoulders? That weight can make getting ahead difficult – financially and emotionally. Investing in a Home Equity Line of Credit (HELOC), which is commonly referred to as a home equity loan, you may have a chance to consolidate your current debts with a payment at a lower interest rate.
No. 3 Home Equity Use: Investment
Homeowners often use their equity to invest in either more real estate, savings investments, or even the stock market. Investments are always risky. You always want to earn more than you put in, but it’s never a sure deal to make. If you decide to use your equity for this purpose, it is in your best interest to take a deep dive and research any potential investment and/or find an advisor you trust to help you make the best decisions.
No. 4 Home Equity Use: Treat yourself
Some people decide that the hard work of consistently paying off loans and debt should be rewarded. A family vacation or a long-wished-for adventure or holiday is possible using the accrued equity. It is the opportunity to build memories, too!
Whatever is the best use of the equity in your home is up to you, the homeowner. If you want to learn more about how to take advantage of the equity in your home, contact me today.
Gary