Today we are going to look at home equity and how to effectively use its potential to improve other areas of your life. Home equity is the market value of your unencumbered interest in your property. This is basically the difference between what your home's fair market value is, and whatever the outstanding balance of all liens are on your property. As you make your mortgage payments each month the equity in your home increases. This is sometimes called real property value. You can also gain equity if the principal value of your property increases. If you've been making payments on your mortgage and have put a down payment on a home already, this money can be accessed in the form of a refinanced home equity line of credit or loan.
- Home equity lines of credit with fixed rates generally last a certain length of time before the balance must be paid off in full.
- Sometimes the agreement allows for the homeowner to pay it off over time once the length of the line of credit has ceased, however this is all tax deductible!
- Home equity loans are lump sums given all at once. The loan must be paid off within a set period of time similar to other loans however because it is tied to your property it too is tax deductible.
- You are allowed to spend this money however you choose. Many people invest in a small business, send their children to higher education, or fund long needed vacations.
How will you use your equity?
Many people who have been paying fixed or adjustable rate mortgages will eventually want to tap into their equity in order to reinvest in their property. Some military veterans who have been away on active duty while paying off their VA mortgage loan might have come home to a house in disrepair. Maybe you just want to remove the lead paint in your aging home, or perhaps the asbestos within your walls? Perhaps you've heard about the government tax breaks for people who make "green" improvements to their homes. Do you want to add a pool to your back yard, or an addition to expand your living room? Home improvement projects are fairly common forms of equity use and can have great returns for you down the line if you are able to increase the value of your home. Remember by increasing your home value you are actually gaining back equity!
What about a line of credit?
Home equity lines of credit are better for people who expect that they will need a boost to their income over the course of a few years. These are often used to fund higher education. However maybe you or a family member has fallen ill and will have medical costs mounting over the next few years. Equity lines of credit can help get you through the lean years of life and make sometimes unexpected costs of living more manageable.
The most professional and up to date advice on all things related to real estate is found at www.real-estate-yogi.com. You can speak with an expert representative anywhere in the country at any time by calling 1-800-987-1397.