The portion of the home’s value you own outright is known as home equity. In other words, if you have a mortgage, your home equity is the portion of your home’s value that you have paid off. You can use home equity to help finance major purchases for your property, such as renovations or repairs.
5 Things You Should Know Before Using Home Equity
1. Home equity is not a liquid asset, meaning you cannot access it as easily as you could with cash in hand. You will need to take out a loan or line of credit against your home equity in order to use it.
2. Equity loans and lines of credit typically have lower interest rates than other types of loans. This makes them a good choice for significant purchases or home improvements.
3. You’ll need to have equity in your home to qualify for a home equity loan or line of credit. The amount of equity you have will determine the size of the loan or line of credit you can take out.
4. Home equity loans and lines of credit are secured by your home, meaning if you default on the loan, your lender could foreclose on your home.
5. You may be able to deduct the interest you pay on a home equity loan or line of credit on your taxes, up to certain limits.
In conclusion, having access to home equity is a great way to finance major purchases or home improvements. Keep these five things in mind before taking advantage of your property, and you’ll be on your way to making the most of this valuable asset.
7 Ways To Build Your Equity
The more equity you have, the more options you’ll have for using it. Here are seven ways to build your home equity:
1. Pay off your mortgage: This is the simplest and most effective way to build equity in your home. Every time you make a payment, a portion of it will go towards paying down your principal balance. This will increase your equity. The sooner you can pay off your mortgage, the more equity you will have in your home.
2. Make extra payments: Whenever you have extra money, apply it towards your mortgage principal. This will help you pay off your mortgage faster and build equity quicker.
3. Refinance to a shorter term: If you have the opportunity to refinance your mortgage, consider switching to a shorter loan term. This will increase your monthly payments, but you’ll pay off your mortgage sooner and build equity faster.
4. Invest in home improvements: Carefully chosen home improvements can make your home more comfortable and enjoyable to live in. Moreover, it can also increase its value. This will give you a higher equity stake in your home. Check out our article on Money Sucking Home Improvements To Avoid and learn which ones are worth pursuing.
5. Pay attention to your home’s market value: Keep an eye on your home’s market value and be aware of when it increases or decreases. If you have a good sense of your home’s worth, you can make choices that will help increase your property asset.
6. Stay disciplined with your finances: Using your home equity as a source of extra cash can be tempting. However, it’s important to resist this temptation and instead focus on building your equity stake.
7. Have a solid plan in place: Before you start taking steps to build equity, be sure to have a solid plan in place. This will help you stay focused and on track as you work to achieve your goals.
In conclusion, building equity in your home is a great way to secure extra finances for major purchases or repairs. Keep these tips in mind to make the most of this valuable asset. Don’t forget to ask your financial advisor at your bank for advice.
For more information, check out Scotiabank’s informative article called How Canadians can use home equity: home equity loans and home equity lines of credit.