What is home equity? You may hear that word a lot, but what does it actually mean? Equity is the value of your home minus the amount left to pay off on your mortgage.
With the recent real estate boom, home prices have soared, meaning that it is likely your equity has increased as well.
You may think that home values don’t matter unless you’re planning on buying or selling your home. That couldn’t be farther from the truth. Your equity can be used in a variety of ways without selling your house.
Debt consolidation is a common use of home equity. Rather than paying multiple bills per month with high interest rates (like on credit card debt), using home equity lumps the amounts together and allows you one payment usually at a much lower interest rate.
Home repairs are another common use for home equity. Using equity to add further value to your home is a great idea if you have larger repairs or renovation plans and need some extra funds to get the job done.
Some less common reasons people tap into their home equity are to fund large purchases like weddings or to gain additional funds for continuing education and college expenses. It’s not recommended to use your equity for unnecessary large expenses like luxury cars or elaborate vacations.
Tapping into that equity looks similar to obtaining a mortgage. You’ll need to find a lender and figure out which method you want to use. The most common equity loans are Home Equity Line of Credit (HELOC), a Home Equity Loan, or a Cash Out Refinance. You’ll likely fill out paperwork about your income and credit information, just like when applying for a mortgage. If everything pans out, your home will then be formally appraised to determine it’s true value.
It’s imperative that you crunch the numbers and talk with a lender before deciding if you should and how to use your equity. There are many options available that may work depending on what you’re intending on using it for.
It does pay to know the value of you home. If you’d like an estimate on what your home is currently worth, reach out to us and we’re happy to crunch some numbers for you!