If you’re a homeowner, that equity you’ve built up can work for you in some clever and surprising ways. This article shares creative tips for tapping into your home’s value.
After years of mortgage payments, your home likely holds significant equity. This equity essentially represents the current market value minus any mortgage debt still owed. Instead of leaving that equity idle, here are 5 savvy ways to utilize it:
1. Pay Off High-Interest Debt
One of the smartest moves is to pay off nagging high-interest debt like credit cards, personal loans, or student loans. This can immediately lift a weight off your finances.
You have a few options to access equity for debt payoff:
- Cash-out refinance – New larger mortgage, cash goes to you
- HELOC – Revolving home equity line of credit
- Home equity loan – Fixed loan with fixed payments
Crunching the numbers will identify the most cost-effective debt consolidation approach for your situation.
2. Fund Home Improvements
Instead of funding renovations out-of-pocket, leverage your equity to finance upgrades like a kitchen remodel, bathroom overhaul, swimming pool installation, attic conversion or other major projects.
The right improvements can boost your home value significantly more than the project cost. Plus you get to enjoy the upgrades and convenience right away.
3. Pay for College
College costs are sky-high these days. An equity loan can help cover tuition, room and board, study abroad opportunities, and other expenses for your children or grandchildren without going into student loan debt.
Certain home equity loans offer income-based repayment options as well which can provide flexibility.
4. Start a Business
Entrepreneurs can use equity to get working capital to launch a small business. The funds can cover equipment, inventory, website development, business licensing, marketing materials, and other startup costs.
Home equity loans for business purposes often have better terms than other types of small business loans. Make sure to have a solid business plan.
5. Generate Passive Income with a Rental Property
With sufficient equity, you may be able to acquire an investment property that generates ongoing passive income through rent payments.
Look for homes priced below market value that rent for more than mortgage payments and expenses. Hire a property manager if you want hands-off income.
When tapping home equity, make sure to borrow responsibly with affordable payments you can handle even if rates rise down the road. But used strategically, your equity can really work for you! Let me know if you need any specific home equity guidance.