As your home appreciates in value, you gain equity. You can look at this equity, as a portion of the value of your home, which becomes an asset that is not burdened by debt. Therefore, this is a critical financial vehicle that cannot be ignored.
Let me say it another way. For most of us, your home Equity is likely to be, the primary, unencumbered assets of your own, personal estate.
Here are several things to consider, when managing this critical financial leverage:
1. Retirement
2. Debt Consolidation
3. Home Improvements
4. Equity Lines of Credit
5. Other
1. Retirement:
Personally, I hate debt. I absolutely, positively, detest debt. I do everything in my power to completely eliminate it from my life. Therefore, this first method is my own, personal favorite.
1. Leave it alone. Ignore it. Pretend it’s not there. Forget about it. Live life as if it did not exist.
2. The equity in your home can become an absolutely essential cog in the wheel of your retirement. But in order for it to work its magic, you need to allow it to build and grow, and avoid all temptation to tap into it.
3. If you can do this, then at the end of the tunnel, there is a nice nest egg waiting for you.
2. Debt Consolidation:
Of course, the above principals of using equity for retirement may not be entirely wise, if you are burdened with additional debt.
1. If your debt is large and encumbering enough, then you may want to consider refinancing and incorporating that debt into a new, first deed of trust. Not only is this more organized and simplified, but you can stretch the loan out over 30 years, thus allowing more affordability.
2. If you wish to pay off the additional debt sooner, or if the debt is small enough, then you might want to consider a second mortgage on the home.
3. Either way, the interest paid on either the new first loan, or the second loan, will be a write off, and thus, you will gain an added benefit by restructuring.
4. In addition, the interest rate on a second (or first) is far lower, then what you’d expect to pay on an unsecured loan, such as your credit card.
3. Home Improvements:
There comes a time in everyone’s life, when you just want to make some changes around the homestead. If you are in the market for a new pool, a decked out backyard landscaping job, a new roof, or new appliances, et al., then a second loan or refinance is generally the way to go.
1. Not only can you pull out a much larger amount of money from your home, then say your credit cards, but the terms are much more agreeable, stretched out over 7 to 10 years or more, at a much lower rate.
2. It’s a write-off.
3. The money spent, goes towards improving the home, and thus, adds to the overall value of your estate.
4. Equity Lines of Credit:
It’s always good to plan for emergencies.
1. An Equity Line of Credit can provide you with the security you need to ensure that you’ll always have liquid assets around, should you need them.
2. This is much more effective than having a large amount of money sitting in a low to no interest bearing savings account in your local bank. Open an equity line of credit, and go invest that money so that it is working for you.
3. It’s also harmless, free, and usually tax-deductible should the need arise to use it.
4. Just keep in mind the importance of discipline. Don’t use it, unless it’s absolutely necessary.
5. Other:
A word of caution: I’m not advocating that you jump in to uncharted waters, or freely spend the hard earned equity that you’ve so diligently been building.
1. But it is your equity. You can save it, consolidate with it, spend with it, and use it to invest in other properties, other businesses, other ventures.
2. So your equity is like your own personal bank. It requires no applications, no processing procedures, and no approvals by the board of directors. It requires none of that, because it is yours. You own it.
3. But just keep in mind, that you have equity because of diligence, intelligence, wisdom, and discipline. You’ve grown it, and now that you have it, another word of caution: Don’t waste it frivolously.
Be good to your equity, and it will be good to you.
We’ve enjoyed providing this information to you, and we wish you the best of luck in your pursuits. Remember to always seek out good advice from those you trust, and never turn your back on your own common sense.
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