Home Equity is the value of a property that represents the current market value of the house in excess of a mortgage balance. This value, which is built over time, can become a powerful tool if used correctly.
Here are five tips to make the most out of your home equity:
Finance expensive purchases
Did you know that you can use your home equity to pay for major purchases? These loans have low-interest rates andinterest payments are tax deductible if you itemize your federal returns. The danger, however, of using these loans is that a borrower may be tempted to extend the loan repayment period. As an example, if you get a new car loan, it usually has a 5 to 7 years term. A home equity loan can be up to 10 years or longer.
Buy investment properties
According to Ryan Boykin, an advocate of opening a home equity line of credit and co-founder of Atlas Real Estate Group, says “It provides the flexibility to get into a deal that you couldn’t [otherwise] get into.” If you have a home equity line of credit open in advance, it means that you can easily access the cash required to close a sale. This allows you to earn additional income for the rental properties by initially using your home equity line.
Improve your home
A borrower can use a home equity loan to make upgrades or make major renovations to his or her home. Home improvements can increase the value of property and extend the life of the property.
Pay for long-term care
“House-rich” senior citizens may be able to afford their long-term care expenses with the use of home equity loans. Regardless of whether they use a home equity, Boykin urges people to be practical for this purpose. He added, “I am not a fan of getting a home equity loan and using it for daily expenses.” Some might sell or downsize the property or move to somewhere more affordable.
Ride out a market downturn
John Gajkowski, a principal of Money Managers Ltd, Financial Group in Oak Brook, Illinois said: “If you hit a hiccup in the market, rather than draw down a depressed portfolio, we can use money from the [home equity].” “It’s a tool in your tool shed that you can use when you need it, but you don’t have to,” Boykin added.
If you have any questions related to use of home equity line of credit, please contact our counselors and visit our website at www.unitedcouncelors.org.
Quotes source: Money.usnews.com