Understanding your Homes Equity and what it can do for you
If you have owned your own home for several years, chances are your property has increased in value and at the same time your mortgage has reduced. This equity in your home could be a potential gold mine because you can borrow against it to invest, allowing you to harness your homes financial potential. Many people get nervous about ‘betting the house’, and this strategy isn’t right for everyone, but in the right circumstances it can significantly increase your wealth over the long term.
Understanding equity
The equity in your home can be thought of as the profit—the difference between how much your property is now worth, and how much you owe on your mortgage. If you have owned your home for many years, your amount of equity has the potential to be in the hundreds of thousands.
An Example about Home Equity Loan
John owns his home. He purchased it 15 years ago for $300,000. Over that time he has worked hard to pay down his mortgage to $75,000. In addition, the values of homes in his area have increased substantially over that same timeframe. His home has been appraised at $700,000. The equity in his home would be $625,000 (the current value $700,000 minus the current balance of his loan $75,000). John will be able to obtain a loan for $500,000 (80% of his equity on the home) which he could use for investment purposes.
Benefits of Home Equity Loans
> Lower interest rates: Generally, home equity loans offer lower interest rates than other types of investment loans. Because the loan is secured by your home, these types of loans are considered less risky to lenders.
> Tax deductable interest: Often the interest associated with home equity loans has the added benefit of being tax deductible, which can help you maximise the financial benefit of investing.
> Put your home equity to work: Many homeowners with equity do not harness this investment potential. Home equity loans can help you to unlock the added value to your home without having to sell.
Education, understanding and knowledge are the key elements in aiding you to achieve your goals, along with the right advice and planning. Talk to your Income Solutions adviser today if you wish to know more.
