Smart Ways to Use Home Equity
As a home owner your home’s equity builds over time, both during your mortgage repayment and as home values rise in the local market. Home equity is the difference between your home’s fair market value and the balance owed to the bank. In many states you can use up to 80% of your home’s equity with a “Cash Out” mortgage refinance.
These 3 smart ways to use your home equity are worth considering for a better financial future.
Paying Off High Interest Debt
This is perhaps the most common reason we see home owners utilizing their home equity. Credit cards, personal loans, student loans, and store credit often come with higher interest rates. The current average credit card interest rate is around 19.25% APR according to WalletHub. Meanwhile the average mortgage interest rates in the last 10 years have been significantly lower between 3.25% and 6% interest.
Consolidating your debt and using your home equity helps you pay back your total debt at a lower interest rate in one monthly payment. You can also free up some of your monthly cash flow by reducing the number of payment obligations.
Going Back to School
Investing in your future through education is a good idea. Whether you need to take a few certification courses or complete a 4 year degree, your career opportunities and earning potential increase with your knowledge. However, paying for tuition, books, exams, and other educational expenses can be the biggest hurdle to achieving your goals.
In comparison to student loans, utilizing your home’s equity through a Cash Out refinance comes with a lower interest rate and lower costs over time. Private student loan companies compound the interest on student loans while you are in school, which can significantly increase your total loan debt by the time you reach repayment.
Utilizing your home equity to pay for higher education is a smart way to increase your earning potential while avoiding the higher cost of student loan debt.
Making Improvements to Your Home
Improving the value of your home by updating or renovating your home also builds more equity. A number of homeowners utilize this smart way to use their home’s equity to increase the resale value of their home. You may consider updating bathrooms, flooring, the kitchen, or adding more curb appeal before putting your home on the market.
Planning to use your home’s equity to pay for home improvements? There are a couple reasons why this is a smart financial decision. Cash Out refinance loans have lower interest rates than credit cards, personal loans, or financing from a home improvement store. The interest on a mortgage refinance for home improvements is deductible from your federal income taxes. Keep proof of receipts from the home improvement costs.
We are here to be your go-to mortgage experts when you are ready to refinance your mortgage or buy a new home. Reach out to us anytime with your mortgage questions.