5 Reasons to Tap Into Your Home Equity
CMS Mortgage Solutions Inc.
CMS Mortgage Solutions Inc.
Published on June 22, 2021
how does home equity loan work

5 Reasons to Tap Into Your Home Equity


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Reasons To Use Home Equity
Reasons To Borrow Your Home Equity
Home Equity Loans

What is Home Equity?

In business speak, equity refers to an individual's share or interest in an entity. The same applies when applied to home ownership, specifically mortgages. The way mortgages work, you make a down payment on a house, and a financial institution fronts the rest of the cost.

As collateral, the house belongs to the lender. As you make your monthly payments, you continue to increase your share in the house and reduce the lender's. The mortgage ends when you complete all the payments, hence owning 100% of the property.

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So, home equity simply refers to your share in the property.

What Is a Home Equity Loan?

A home equity loan is a type of consumer debt. It is also referred to as a second mortgage. If you have a large payment coming up, and are unable to come up with the cash, a second mortgage may be just the thing you need.

A home equity loan allows you to borrow money from a financial institution, with your share in your property as collateral. The amount you can borrow will be the difference between the amount you still owe and the market value of your home.

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You may think that you have no savings, but that's not entirely true. As we've shown, your home equity presents a lucrative opportunity if you're ever in a jam and need quick access to funds.

Reasons to Leverage Your Home Equity

You can take advantage of the equity you've built up in your home for any purpose. However, since the process is technically leveraging the roof over your head, it's best to be careful. Here are 5 reasons to use a home equity loan:

1.  College Tuition Expenses

The dominant method to paying for college is a student loan, and many financial entities do not provide a home equity loan for this purpose. However, if you find a provider that is willing to do so, then you'd find that a home equity loan is a superior option. The reason for this lies in the terms of the loan itself.

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The terms of home equity loans can offer better rates than conventional student loans, as well as the opportunity to borrow more. However, one must be careful as defaulting on a home equity loan could carry far more serious consequences than defaulting on a student loan.

2.   Emergency Payments

No one needs to be reminded of the fact that life is unpredictable. As many of us live paycheck to paycheck, it is difficult to accumulate savings for emergency expenses. We're all familiar with how expensive a trip to the hospital can be.

It would give anyone peace of mind to know that they have a fund they can tap into if an emergency arises. However, it is best not to rely on this option on short notice. There is a proper process, and any lender will do their due diligence. So, in the event of time-sensitive matter, it's best to consider other options.

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3.   Home Renovations

Suppose you've noticed that your home is becoming a hazard to live in. Okay, maybe it's not exactly a hazard, but it can be very uncomfortable if your home is outdated. Furthermore, it can also be inefficient, since technology has moved at a blistering pace since the house was constructed.

Taking advantage of a home equity loan will help you save on energy expenses and can even increase the curb appeal of your property. Improvements to your home can make it more attractive to prospective buyers, increasing its value.

You should be careful however, not all improvements will result in an increase in value. You should only choose upgrades that actually carry a significant benefit.

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4.   Debt Consolidation

Monthly payments for several different loans becoming harder to keep up with? It might be a good idea to consolidate all your debts into a single monthly payment. You can do this by taking out a home equity loan, and using it to pay off all your other debts.

The benefit of this is that the terms are easier to keep track of. It can also offer terms that are more favorable than the ones you're already committed under. In fact, home equity loans normally have better rates than other loans anyway.

5.   Making Investments

You have to spend money to make money, right? You shouldn't use a home equity loan to invest without a good idea about financial markets. Even if you feel fairly confident, it is recommended that you only take out a loan against a percentage of the home equity.

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You can also use the loan to purchase properties that you can rent out to tenants. Make sure that the rental income from these properties can cover the loan, as well as leave a healthy profit for you.

Final Thoughts

You should always do your due diligence before entering into any kind of financial obligation. When it comes to a home equity loan, there's the added pressure of losing your home if you default. As such, you should conduct proper research, and consult experts before making a final decision.

Here at CMS Mortgage Solutions Inc., our team of experts is always ready to give you several options, so you can make the best decision possible! Click on this link to learn more.

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CMS Mortgage Solutions Inc.
CMS Mortgage Solutions Inc. Virginia Beach
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