How to Gain and Use Home Equity

The North Shore real estate market is still incredibly hot! The high values of homes in this current seller’s market mean that those who already own them have probably seen a large increase in equity due to high appraisal values. Working with an experienced Realtor who is knowledgeable about the market is critical- here is how to gain and get the most out of your home equity. 

How to Build Home Equity

The first way to build home equity is through a down payment on a house. The larger a down payment you spend on a house, the more equity you will immediately possess. Your equity continues to grow as you make mortgage payments, so be sure to pay them on time. If you have the means to pay more than the minimum monthly mortgage payment, you will build equity faster.

Home equity grows with the value of your home, so staying in the same place for multiple years will likely increase the chances of your home’s value going up. Though it isn’t possible to predict the housing market with complete certainty, home values always trend upwards over time. Another way to increase the value of a house you own is with home improvements. Obviously, improvements that increase square footage will bring more value to your home, but so do smaller projects like finishing a basement or adding a walkway. Be sure to research what home improvements will add value to your home, and consider using money borrowed against your home equity to fund such projects. If money borrowed on home equity is used for capital improvements, the interest is tax-deductible. 

 

How to Borrow Against your Home Equity

Home equity is considered an asset and a part of your net worth, but it is not a liquid asset. To use your home equity to leverage more funds, you will have to look into the different ways to borrow against it. 

Home Equity Loan

A home equity loan, also referred to as a second mortgage, is a lump sum borrowed against your home equity, separate from your original mortgage. Unlike business or student loans, you can use a home equity loan for a large variety of purposes. They also have lower interest rates than credit cards due to the fact that your home is being used as collateral in the transaction. Taking a lump sum is a good option for those who are prone to overspending, as you cannot impulsively take out more than the agreed-upon amount. 

Home-Equity Lines of Credit 

Home-equity lines of credit, or HELOCs, are a common way of borrowing against your home equity. HELOCs are growing increasingly popular with homeowners who are not interested in refinancing their homes due to current high interest rates. They work similarly to credit cards in the sense that the homeowner can borrow up to a certain amount of money and pay off the balance. This method of borrowing is considered better than lines of credit or personal loans, as they are far cheaper. HELOCs offer a revolving line of credit that allows you to borrow as much or as little as you like, making them different from the lump sum received in a home equity loan. 

 

How to Use Funds Borrowed Against Home Equity

Borrowing against your home equity can help you pay off debts at lower rates. Many people choose to use home-equity lines of credit for large debts, higher education, or another property! Perhaps the most common use of a HELOC is for funding home improvements or additions. Using money borrowed against your home equity to improve or add to the home is a great idea, both for your own personal use of the space and for increased home value if you are looking to sell in the future. If you are looking to use your current home equity to help you invest in another property, contact me today to get started!