When To Use, And When NOT To Use, The Equity In Your Home
Your home is more than just a place to live, but how you use its value can make the difference in your long term financial goals.
Owning a home is more than just having a place where your rent doesn’t rise. It is more than just a place for you to live and raise your family. It’s an investment, and one that can help you reach your ultimate financial goals, IF you play your cards right.
Of course it goes without saying that owning property is one of the best, and safest, investments one can make. As your home grows in value and your loan amount decreases, the difference between the two amounts is known as “equity.” This equity is something you can use to your financial advantage, but you need to be smart.
When should you NOT use equity:
- To pay for a vacation
- To buy a new car, boat, recreational toys
- For every day expenses
When SHOULD you use equity:
- Improvements to your home that will increase its value
- That’s about it!
Yes, you can refinance to pull equity for all kinds of things, but remember that, as an investment, your home should be the top priority if you’re leveraging equity.
BEWARE THE REPETITIVE REFINANCE AND/OR HELOC!
It’s easy to get caught up in the convenience of refinancing, especially if you haven’t watched your budget as closely as you thought. In some cases, the first thing a refinance lender will do is remind you of your outstanding debt, and offer you the opportunity to pay it off with a refinance. While it’s worth considering, especially when you can re-fi at a very low interest rate to pay off high interest debt, remember that it’s being financed over the life of your mortgage.
What’s a HELOC?
HELOC stand for Home Equity Line of Credit. It is billed as a very convenient way to access the equity in your home without the time consuming task of refinancing. It can help when you want to make more immediate repairs or upgrades to your home, but it does come with a caution: Some HELOC’s come with heavy finance charges, or balloon type agreements to be paid back within a few years. Some homeowners end up in the trap of having to refinance at the end of the HELOC term just to pay back the balloon payment, thus, the “repetitive refinance.”4
Be informed, be educated, about your real estate investment.
Contact me for a no obligation consultation regarding your real estate goals.