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Home equity refers to the invested value that you have in your home. To calculate your home’s equity, you will need to subtract any and all liens on your home from its current market value. The remaining total is your home equity.
Building equity is very important, as you can leverage the equity that you have accumulated in many different ways. From cash-out refinancing and home equity lines of credit to home equity loans, there are many benefits to building equity in your property.
Here, we will focus on how to build home equity in an investment property.
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Best Ways to Use Home Equity
Home equity can be used to make improvements to your home, such as renovating it. You can use the money to pay for your child’s college or to pay off your own student loans.
You can also use your home equity for the purposes of debt consolidation, which involves combining all of your debts into one in order to maximize convenience and save some money in the process.
Home equity can be used for emergency expenses, such as medical bills or funeral costs. You can also use the money to make long-term investments that will pay great dividends when you are ready to retire.
You can use the money to start a new business, or to expand an existing enterprise. The money can also be used to go on a exotic trip or to pay for a lavish wedding.
Reasons to Tap Into Equity Loans
Equity serves as the difference between the current market value of your home and the balance that is left on your mortgage. Your equity will likely continue to increase over time, as home’s tend to appreciate in value.
As for home equity loans, they have many benefits. For example, they tend to involve low interest rates, regardless of what is transpiring in the broader economy.
As your home will serve as collateral in order to secure the equity loan, the interest rate that is charged will be lower than normal. Also, not only will interest rates be low, but they will be fixed, thus providing a sense of stability.
In addition to lower interest rates, the repayment period can range from one to three decades. As such, your monthly payments will be very low.
The money that is provided from the home equity loan can also be used for virtually anything. You can use the money to pay off your credit card or student debts, or to buy a car or go on vacation.
If you are looking for a quick and convenient way to obtain a large sum of money, then a home equity loan may be a viable option.
Top Ways to Build Equity Like an Expert
One of the primary benefits of investing in real estate is that you will have the opportunity to build equity in your rental home or investment as well. Building your home equity will allow you to leverage it in almost any way that you see fit.
You can build equity quickly in your rental property in many interesting ways. For instance, you can use the earnings that you generate from your rental property in order to reduce the debts that are owed on the property.
Increasing the property’s value by, say, making renovations or upgrades will also help you build equity faster. Take advantage of bonuses, gifts, tax refunds, and any other windfall at your disposal in order to reduce your debt quicker.
You may also want to look into cutting your loan term by half. Shorter terms will allow you to pay off your mortgage that much faster, thus allowing you to quickly build equity on your home. Putting down a large down payment will also help you rapidly build equity.
As well, if possible, make extra payments on your rental property. There is no law that states that you cannot pay more per month than what was outlined in your mortgage agreement.
You can improve the indoor space by making upgrades or renovations, and also improve the curb appeal of the property via landscaping, adding veneers and decks, replacing doors and windows, and adding a fresh coat of paint.
Take the First Step
Your home equity can be used to fund virtually anything that you desire. You can accumulate equity faster by making home improvements to your property and by paying off your debts quicker.
To avoid future complications, speak to a financial advisor or expert in order to learn more about the benefits of home equity as well as some of the pitfalls to avoid.
Sources:
The pros and cons of home equity loans | MassMutual
What is home equity and why is it important? – Movement Mortgage Blog
