3 key things to remember before using home equity

by | Apr 21, 2017 | Investing, Mortgages

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One of the benefits to owning a home is that as housing prices increase, so does the value of your home. The change in value from when you purchased your home is referred to as equity.

For example, if you purchased a home 10 years ago for $150,000 and it’s worth $350,000 today, your home has equity of $200,000 (not counting the amount you paid off on your mortgage over those 10 years).

You’re free to access the equity in your home for various purposes, including going on trips, renovating your home, or making an investment. By accessing your equity, you would be refinancing your mortgage.

When accessing your equity to invest, however, keep these 3 things in mind:

1. You get only 80% of your home’s equity

Refinancing your mortgage can open up your home’s equity, however, most lending institutions won’t lend you all of your home’s equity. In fact, many draw the line at 80%, so keep that in mind when calculating available funds.

2. Accessing your equity may cost you

If you access your home’s equity before your mortgage term is up for renewal, you’ll likely have to pay a penalty for ending your term early. Accessing your equity early requires your lender to rewrite your mortgage early, and they’ll charge you for this.

3. Invest wisely

If you’re going through the trouble of accessing your equity (particularly if you’re charged penalties), be sure the investment is worth it. If your rewritten mortgage has a 4% interest rate, for example, you wouldn’t want to invest in something with only a 3.5% return.

Contact Mortgage Design Group today to find out how much equity is available to you and to discuss your investment plans or refinancing your mortgage.