Are you sitting on a gold mine?
The potential benefits of Home Equity Loans
- Lower interest rates
Generally, home equity loans offer lower interest rates than other types of investment loans. Because the loan is secured by your home, these types of loans are considered less of a risk to lenders.
- Tax Deductable Interest
Often the interest associated with home equity loans have the added benefit of being tax deductible. This can help you maximise the financial benefit of investing.
- Put your home equity to work
Many homeowners with equity do not harness this investment potential. Home equity loans can help you to unlock the added value to your home without having to sell.
Things to keep in mind about Home Equity Loans
- Risk to your home
The most obvious downside to home equity loans is the risk that if you default on your loan that your lender will sell your home to pay out the loan.
- Increased liabilities
When you borrow from the equity in your home you are reducing the amount of your home that you actually own and increasing your liabilities.
- Longer home loan horizons/more expensive repayments
By adding to your level of debt, your home loan will take longer to pay off, or your repayments will increase.
Could a home equity loan be a good option for you?
Talk to Gordon Hatch on gordon@taurusfinancial.com.auto find out.
If you’ve owned your own home for several years, the chances are that your property has increased in value at the same time that your mortgage has reduced. This equity in your home can be a potential gold mine because you can borrow against it to invest, allowing you to harness your home’s financial potential. Many people get nervous
about ‘betting the house’, and this strategy isn’t right for everyone, but in the right circumstances it can significantly increase your wealth over the long term.
Home Equity Loans
Home Equity Loans allow you to access the equity in your home even if you’re not yet ready to sell. A lender will loan you a proportion of your home equity which you can use to increase your investment portfolio, to renovate or improve your property and increase its market value, consolidate your debts, or even start a business.
Understanding equity
The ‘equity’ in your home can be thought of as the profit—the difference between how much your property is now worth, and how much you owe on your mortgage. If you have owned your home for many years, your amount of equity has the potential to be in the hundreds of thousands.
An Example—Home Equity Loans
Kate owns her own home. She purchased it 15 years ago for $300,000. Over that time she has worked hard to pay down her mortgage which is currently at $75,000. In addition, the values of homes in her area have increased substantially over that same timeframe. Her home has been appraised at $700,000. The equity in her home would be $625,000— the current value ($700k) minus the current balance of her loan ($75,000).
Kate obtained a loan for $500,000 (80% of her equity) which she used to add a second storey to her home and increase its market value.
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