One benefit 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.
As home values increase and mortgage principal gets paid down, the equity you have access to grows. That equity is an ideal resource to create greater financial security.
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. When accessing your equity to invest, keep these 3 things in mind:
1. You can access up to only 80% of your home’s equity.
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, you wouldn’t want to invest in something with only a 3.5% return.
There are many ways to sensibly access your home’s equity. For example, a secured line of credit has the most flexibility: you pay interest only on the amount you use when you use it. Refinancing your mortgage is another option that allows you to take advantage of low interest rates while accessing your equity.
You’ve worked hard to build the equity in your home and now might be the time to get that equity working for you. We’ll provide you with choice, convenience, and counsel so you can select the best custom solution for your needs.
We’re here to help people get their first home and on the path to building equity that will become the foundation of a long term financial plan. In addition, we can help look at the many available options that can release the equity that has been built over time for renovations, paying off higher interest debts, or making other investments.
We work with dozens of lenders to get you the best rate, best term, and best features. Contact us today to find out how much equity is available to you and to discuss your investment plans.