Before understanding what you can do with your home equity, it’s important to understand if it’s the right time to take equity out. If you’re like most homeowners, you had to borrow money to buy your home, so you understand the importance of making on-time mortgage payments each month. Typically, in the early years of a home loan, a larger portion of your payments will cover mostly interest. The longer you pay on the loan, more of your payment will go towards principal – the actual cost of the home — which kick starts the equity-building process. Home equity can be built in two ways: when the amount of debt you owe on your mortgage decreases and/or the property value increases. The good news is home values are on the rise and now could be a great time to look into taking equity out of your home!
How to Leverage Your Home Equity
Truly, one of the most attractive advantages of homeownership, equity becomes a significant asset and contributes to a solid financial position since it literally represents the amount of your home that you now actually own. The simplest way to determine equity, and ultimately when and how to tap into your home equity, is to subtract the balance of your loan from the value of your home. For example, if your home value is worth $250,000 and you owe $100,000 on your mortgage, the difference of $150,000 is the amount of equity you have in your home. This translates to financial strength for the homeowner and opens up a brand-new avenue of purchasing power by using your home’s equity.
Cash Out on Home Equity
After all those years of making monthly mortgage payments why not reward yourself with a once-in-a-lifetime splurge by turning that home equity into a cash out refinance loan? Similar to a refinance but with a “cash out” component, you simply take out a new loan for more than the amount owed and receive the difference in cash at closing.
Think of all the different ways a bundle of cash can get you what you need – or even what you want!
What Can I do with home equity?
Trying to figure out how to leverage your home equity for your needs can be a challenge. Are the kids headed to college? Are you haunted by heavy credit card or medical debt? Credit card debt typically carries a higher interest rate than a home loan, so the financially smart move might be to pay off your credit cards with a lower interest rate, cash out refinance loan. Or maybe it’s time to make those badly needed home improvements which can give your living space an exciting new facelift and, very likely, increase your home’s value.
Then again, you may want to skip using your home equity for the house, or finances or education, and instead make a long-held dream come true. For instance, many consider leveraging their home equity loan for vacations. Could it finally be the right time to get away for a magical vacation with the kids to Disney World? Or maybe it’s a second honeymoon for you and your spouse to a balmy sun-drenched island destination?
No matter how you choose to use your home equity there’s no better time than now to get started! Review our cash out refinance checklist to see if it’s the right choice for you. Contact a Freedom Mortgage home loan specialist at 877-220-5533 or get started online today.