Hidden Wealth: How to Use Home Equity to Your Advantage
If you’ve been in your home for a while, you’ve likely built up a fair bit of equity—but are you making the most of it? If you didn’t know, home equity is the difference between what your home is worth and what you owe on your mortgage. It’s a powerful financial tool that can help you eliminate costly expenses, fund major projects, or even provide additional income in retirement.
At The Sales Team Realtors, we want you to realize and utilize the value of your home no matter the reason. That’s why we’re here to break down smart ways to leverage your home equity—whether you want to ditch private mortgage insurance (PMI), secure a loan, or refinance for better terms.
Here are a few ways to tap into your home’s equity.
Home Equity Line of Credit (HELOC)
A HELOC is a flexible credit line that allows you to borrow against your home’s equity as needed. Unlike a home equity loan, a HELOC works more like a credit card, giving you access to funds over time rather than in one lump sum. This is a great option for ongoing expenses, such as home improvements or emergency funds, but be mindful that interest rates can fluctuate.
Cash-Out Refinance
A cash-out refinance replaces your existing mortgage with a new one for a higher amount, allowing you to take the difference in cash. This can be a smart move if you need funds for major expenses and can secure a lower interest rate in the process. However, since this increases your loan balance, it’s essential to ensure the new terms align with your financial goals.
Use Your Home Equity to Eliminate PMI
Private mortgage insurance (PMI) is an added cost that protects lenders, not homeowners. If you originally put down less than 20% on your home, you’re likely paying PMI each month. The good news? Once you’ve built up at least 20% equity, you can remove PMI by refinancing or requesting lender approval. Using your home equity strategically can save you hundreds of dollars per year by eliminating this extra fee.
Home Equity Loan
A home equity loan allows you to borrow a lump sum against your home’s value, typically at a fixed interest rate. This option is ideal for major expenses like home renovations, debt consolidation, or even funding educational costs. Since the loan is secured by your home, interest rates are often lower than personal loans or credit cards. Just keep in mind that missing payments could put your home at risk.
Reverse Mortgage
For homeowners aged 62 and older, a reverse mortgage offers a way to tap into home equity without monthly payments. Instead of making payments, the loan balance grows over time and is repaid when the home is sold or when the borrower moves out permanently. This type of loan can provide financial relief by covering medical expenses, supplementing retirement income, or even paying off an existing mortgage to reduce monthly expenses.
How do you calculate your home’s equity?
Understanding your home equity starts with a simple calculation: subtract your outstanding mortgage balance from your home’s current market value. For example, if your home is worth $400,000 and you owe $250,000, you have $150,000 in equity. Knowing this number is essential for determining your borrowing power and financial options.
There are several ways to estimate your home’s value. You can use online valuation tools, check recent sales of similar homes in your neighborhood, or consult The Sales Team Realtors for a more accurate assessment. If you’re planning to use your home equity, having a precise valuation will help you make informed decisions about loans, refinancing, or selling your home.
Your home equity is more than just a number—it’s a financial resource that can work for you in various ways. Whether you want to eliminate unnecessary costs, invest in your home, or secure financial flexibility, there are multiple options to explore. Before making a decision, consider your long-term goals and consult with our team to ensure you’re making the best choice for your situation.
Ready to put your home equity to work? Let’s chat!