Why Now Is the Best Time to Build Home Equity In Your Home

Things are extra tough for almost everyone these days and building equity in your home may not be on your priorities list. However, the fact is that for most people, now is the best time to build home equity. Why? Because if you can afford it, working on home improvement or paying more towards your mortgage is easier done now than when the norm was spending time and money outside the home.

Build Home Equity Now

Building home equity is an important part of being a homeowner. Each payment you make and any improvement you do for the home goes towards building home equity. No matter how small the growth is, small growth accumulates over time and can be useful later. Home equity is a financial asset that can be accessed in a variety of ways especially in times of need.

But first, what is home equity? Some people may not be aware that the value a homeowner owns in a home is what constitutes home equity. To have an idea regarding how much is your home equity, just take the estimated current market value of your home and subtract what you still owe in your mortgage from that. What’s left is your home equity. For example, if your home can be sold for $500,000 now and you still have $150,000 left to pay, then your home equity is around $350,000. That’s a huge asset that you can access via a home equity loan or when you sell your house.

What Are Ways to Build Home Equity Now?

The first step to building your home equity is to put in a substantial downpayment. The bigger the downpayment you put in when you buy your home, the bigger the initial home equity will be. After getting this head start, you can focus next on increasing property value. You can achieve this by making home improvements that boost the property’s value. This can  include adding a deck, retiling some areas, modernizing the kitchen, and so on. A good way to know which home improvement projects can bring the most value is to consult real estate professionals. Note that what you spend on home improvement may not be equivalent to the increase in property value that you can enjoy later. Next is to make sure that you pay more on your mortgage. You can pay more by simply paying more than your fixed monthly obligation. You can also opt to change your payment schedule from monthly to bi-weekly to make things easier to manage for you. If you think that you can still do more, you can consider refinancing to a shorter loan term. This will substantially increase your minimum monthly payments but usually gives you a better exchange rate plus a shorter payment plan. Last but not the least, you can simply wait for the property value to rise. Most residential areas are continually developing so even without doing anything, you can expect to see an increase in property value after a few years.

Make Your Home Equity Work for You

One great thing about home equity is that it is like having a time deposit that you can access later or during times of need. If you need access to your home equity soon, you can tap into your home equity by applying for a home equity loan. Contact us if you need help with a home equity loan.

 

Why Borrow Against Your Home Equity?

Borrowing against their home equity gets some people feeling iffy, viewing the transaction with suspicion and thinking that it is a ploy for lenders to rob someone off of their home. The truth is far from this. Borrowing against one’s home equity can prove to be a smart financial decision as long as it is done right and for the right reasons.

Using Your Home Equity

Your home equity is the value your home that you actually own. It is defined as the difference between what the homeowner still owes in the current mortgage and the home’s current market value. Considering this definition, there are 2 ways to increase your home equity. One is when you make payments towards your mortgage, and another is when the value of your home increases such as when real estate value increases or when you make certain home improvements that add value to your home.

Borrowing Against Your Home Equity

You can tap your home equity by getting a loan against it. There are different types of home loans that are taken against your home equity. We will talk about the 3 most popular options today – getting a HELOC or a home equity line of credit,  getting a  mortgage refinance, or getting a second mortgage or a lump sum home equity loan. It can get confusing regarding whether you should go for a HELOC, a second mortgage, or a home refinance to access your home equity so read on to get an idea about each one.

Mortgage Refinance

A mortgage refinance is a great way to tighten things up when there has been a significant change in your home’s value such as in the case of skyrocketing home prices in areas that have undergone some recent development. Depending on the terms of the refinance, you may find yourself saving a lot of money on interest fees, finding that it is easier to pay your loans, or even both.

Second Mortgage

Also called home equity loan, a second mortgage allows you to tap your equity and get a lump sum of cash that you can use to consolidate debt or pay for any huge expense. Debt consolidation is a popular reason for applying for a second mortgage because it lets the homeowner save so much on interest fees for high-interest loans. The downside is that paying back a second mortgage usually comes with a short time frame.

Home Equity Line of Credit

A HELOC is the most flexible compared to the previous 2 ways to tap your home equity. The payment for a HELOC can also prove to be the easiest to manage; however, you won’t benefit much from a HELOC unless you need access to a revolving credit source cash for quite some time. Remember that payment will be scheduled at a certain time so you can’t just go to the lender and pay back your HELOC even when you have the means to do so.

Are you still unsure whether is it time to leverage your home equity? Talk to us and let us know what your concerns are so we can help you choose a loan product that will best suit your needs. Contact us at Mortgage Central Canada today!