HOW TO USE HOME EQUITY TO YOUR ADVANTAGE 

Home Equity is the true amount of your home that you own, the value of your home less your mortgage amount.  As you pay down your mortgage and your home value increases your equity goes up. The two typical ways to access your Home Equity are by refinancing your mortgage or adding a Home Equity Line of Credit (HELOC). Refinancing your mortgage gets you access to the lowest loan rates possible under one payment. Adding a HELOC allows you to have a Line of Credit to use when you want with interest only payments at a rate of Prime +.50%

The two typical ways to access your Home Equity are by refinancing your mortgage or adding a Home Equity Line of Credit (HELOC). Refinancing your mortgage gets you access to the lowest loan rates possible under one payment. Adding a HELOC allows you to have a Line of Credit to use when you want with interest only payments at a rate of Prime +.50%

But how can you best make use of your built up equity? There are several ways to use your equity to save, or even earn, yourself money.

Debt Consolidation

As a mortgage is secured to an asset, your home, it is considered lower risk than an unsecured loan and therefore carries a lower interest rate. If you are carrying unsecured debt on your credit cards, lines of credit, loans or other facilities, the interest rates will be SUBSTANTIALLY higher than the interest rate on your mortgage. By refinancing to consolidate your unsecured debt into your home mortgage you can

• Lower your monthly payment to improve cash flow. The minimum payment on a Credit Card or LOC is 3% of the balance while on your mortgage it is roughly .43% of the balance. For a credit card with a $10,000 balance, the minimum payment would be $300. On a mortgage, that same $10,000 costs $44. That’s a saving of $256/month.

• Pay less interest. Paying off $10,000 in credit card debt at 18% interest with a $300 monthly payment would take over 22 years and cost $9,700 in interest. Making the same $300/month payment to $10,000 on a mortgage would have the debt paid off in 3 years and pay $507 in interest saving you almost $9,200. 

Using the Equity to Invest

Rather than dipping into your savings or investments, your Home Equity is an excellent source of capital to fund an investment opportunity. The most common use is to invest in income generating Real Estate, by using your Home Equity as a down payment to purchase another property. in this way, you are able to leverage 100% on the rental property purchase, and the interest you pay is tax deductible. You can also use the equity to seed more traditional investments or to start a business. 

No matter what reason purpose you are accessing your Home Equity for, the first step should be to talk to a Mortgage Professional to determine how much equity you have and the best plan to make use of it.