Most of you reading this knows what home equity is but just a refresher, your home equity is the positive value that you get when you subtract what you currently owe on your mortgage from the current market value of your home. If the number is a negative one, then you’re underwater and do not have equity.
The reason why it is important to understand what home equity is because while there are millions of homeowners who are enjoying an appreciating asset, there are also millions who are trapped underwater and this post isn’t really for them. Now, if you’ve got equity with your home, then you can consider tapping it with a home equity line of credit (HELOC). Basically, a HELOC is a revolving loan that’s funded by your home’s equity. It works as a second mortgage that is often connected to a credit card or a chequebook.
Below are 2 reasons you should consider to determine if a HELOC is right for you:
Smart Reason #1: Your Home Needs Major Repairs
When important and expensive systems fail, then getting a HELOC is great to fund your required repairs. It can also be handy for avoiding minor catastrophes by funding expensive preventive maintenance. Examples of this are bolstering a worn deck, replacing old plumbing, and repairing a cracked foundation. Things like these are not covered by home insurance so having a way to get these taken cared of is always welcome.
Smart Reason #2: Your Home Needs an Upgrade
Paying for home renovations and remodeling projects are smart ways of putting your HELOC to good use. Anything that can add value to your home by using its equity for funding improvements makes a lot of financial sense in the long run, more so if you know how to choose wise home upgrades. Calculated home upgrades can add a lot of value to your home, but you have to be truly cost-efficient in your upgrades to have a fair return of investment.
As for home upgrades, repainting a kitchen gets you more ROI than a complete kitchen overhaul. Probably the easiest and most rewarding home upgrade you can do is to replace your front door. It is such a small thing but can mean a few thousand dollars added to your home’s perceived value.
Need help getting a HELOC? Contact our team of Toronto mortgage brokers today! We’ll answer your questions and help you with the whole process. Remember, managing your HELOC starts with choosing one with a good interest rate and other payment terms. Make sure you are tapping into your home equity for the right reasons to avoid falling further into the debt trap.