How to Use Home Equity to Your Advantage?

Tapping


In this fast-paced market place, home values have grown considerably, leaving homeowners with the opportunity to tap into home equity. Homeowners probably know that having home equity is a good thing, and they can use it to their advantage. In fact, many homeowners use their house as the most convenient way to generate capital gains, pay penalties, borrow, etc. However, it is essential to use home equity wisely, depending on the circumstances and objectives. If you are also planning to tap into your home equity but are unsure of the ways, we are here to help you out. In this blog, we explain how you can use home equity to your advantage in a savvier manner.

Home Equity Loan:

A home equity loan is a loan against the equity you have built up. Also known as a second mortgage, this type of home loan is most structured and tends to have a lower interest rate than personal or unsecured loans. However, it is higher than the primary mortgage. The home equity loan can further be used for debt consolidation, funding education, keeping up with the regular household bills, making other investments, etc. In addition, the loan can be used for managing big-ticket expenses like home remodeling.

Home Equity Line of Credit

The home equity line of credit is similar to the loan as you will still be borrowing against home equity, but the disbursement and fee structure are different. This is also the most flexible type of loan, which comes with two distinct pay periods: the draw and repayment period. During the draw period, you can draw money as required, and you will only have to make payments on the interest. In the repayment period, you will have to start making payments of what you have borrowed.

Cash-out Refinance

In cash-out refinance, a home equity holder can borrow more than what is owed by refinancing home at a higher rate. This means you can borrow more than what you currently owe depending upon the value of equity in your home. The difference in the amount can be taken in the form of cash, which can be used as deemed fit.

Selling Your House

The most common way to use home equity is to sell the house to buy something bigger like another home. The idea is to sell the home at a price higher than what is owed on the mortgages. The profit earned in the process can be used to buy a bigger house and leverage equity even further.

Although tapping home equity to access cash is a good option, it is crucial to proceed with caution as you are borrowing against your home. Not withstanding this, if you plan to buy a luxury apartment in Jaipur , Delhi, Pune, etc., against your home equity, then you may proceed with it as you most probably be getting the best deal. So, plan wisely to use that money cautiously.