Equity is your home’s most important and valuable asset.
It appreciates over time with each mortgage payment, and other economic trends, such as rising property values, low interest rates, and increased demand.
Improvements and upgrades such as additional living space, kitchen and bathroom updates, and outdoor amenities can add to your home’s current value.
The more equity you accrue toward your home determines what you can borrow against its total value to fund improvements and upgrades, emergency medical expenses, real estate investments, and debt consolidation.
Benefits
To determine your home’s total equity, subtract your outstanding mortgage balance and any equity-based debts from its appraised value.
If your home is valued at $375,000, for example, and you still owe $180,000, your total available equity is $195,000.
Home equity is more prudent than other funding avenues, such as high-interest credit cards, personal loans, or cash advances.
It also boasts tax-saving benefits for homeowners claiming accrued interest on yearly returns. Refunds can then be used for additional, equity-building capital improvements.
Uses
It’s not recommended to use home equity for depreciating items, such as luxury cars, jewelry, expensive vacations, or other frivolous purchases.
As aforementioned, it's best to invest newly acquired funding toward a value-added expense benefiting your family and home.
Home Improvements & Upgrades
Applying your home’s equity to achieve your dream kitchen with new countertops and modern appliances, for example, is a solid investment. It provides stylish updates for your home’s appearance and enhances property value.
A turnkey home requiring minimal renovations and maintenance has become desirable for homebuyers who might not have the time or budget for large renovations.
Emergency & Medical Expenses
Instead of accruing significant, high-interest credit card debt, home equity can be used toward medical emergencies requiring additional out-of-pocket costs.
It can also be applied to emergency home maintenance purchases, such as new heating and cooling systems, roofing and siding, or weather-sustained damages.
Education
Higher education funding is another wise use of home equity. Unlike a traditional student loan, this investment toward your child’s future establishes low-interest, flexible repayment schedules.
Debt Consolidation
Home equity can be used to consolidate debts accrued from credit cards, cash advances, and other outstanding loans. It creates a lower-interest plan, consolidated into one recurring monthly payment.
Because this is considered an unsecured, non-collateral debt, it’s imperative to ensure timely, regular payments to avoid foreclosure or other unfavorable situations.
Real Estate
Low interest rates and expanding inventory are enticing more borrowers to utilize home equity for additional real estate investments. The money you borrow against your equity can also be paid back through rental income received from long- or short-term tenants.
Validating Your Decision
When choosing how to assess your home equity lending options, it’s best to enlist a reputable mortgage lender for guidance on pre-approvals, types, rates, and more.
Contour Mortgage provides lending services throughout the United States. Contact us to learn more about our various home equity loan products.
