Building the equity of your home implies a variety of benefits. Home equity is the difference between your property’s market value and the remaining balance on your home loan(s). The more you pay towards your debts, the higher the home equity gets.
How do you acquire home equity?
Upon down payment, you are already banking on your property’s equity. On your monthly mortgage payments, the portion of it that goes towards the loan’s principal also helps you in growing your equity.
Although not all home improvements increase the value of the home, there are certain improvements that increase its value. A healthy real estate market also contributes to the price appreciation. Equity increases as the home value increases.
How Will Home Equity Help You in the Future?
You can borrow from your equity. Homeowners make use of home equity loans. The equity serves as a collateral. Most home equity loans have more favorable interest rates.
The money loaned can be used to fund a college education, do home renovations and may other things. However, since this is still debt that needs to be repaid, it is wiser to use this financing towards something that yields higher returns. Long term investments can be a good example.
It can help you during your retirement. When you reach 62 years old and you have paid your mortgage dues consistently, you can take advantage of a reverse mortgage loan.
In a reverse mortgage, you will not be paying monthly dues. Instead, it is the lender who pays you. You can choose from a number of payment methods. It can be through monthly disbursements until you exhaust the maximum loanable amount. You can also opt to withdraw from it as a line of credit. It is also possible to have a combination of the two.
Retirees do not have to pay the loan right away. The loan only becomes due when the retired borrower chooses to leave the house or dies.
Tapping on your property’s equity can help you in your finances. This is why is it is important to always be consistent in paying against your mortgage loan balance. It is tempting to tap into your home’s value to get some funding. but if you do not have a good reason to do so, leave it as is. It is always better to let your equity build up until you are 100 percent debt free.
Keeping your home equity available for much more important situations will be a good cushion. Using it as an investment is also a wise way to make use of it.