How to Tell if You Should Tap Your Home Equity

People usually tap home equity to pay debts.

Now more than ever, Americans are starting to tap their home equity. According to Freddie Mac, this will be one of the biggest trends in the 2018 mortgage market. What does it mean to do it? And what benefits does it bring? Many people cash out their mortgages with the purpose of paying other existing debts or making home improvements. As mortgage rates are expected to rise in 2018, tapping home equity will likely become one of the major forms of mortgage refinancing in the market. Are you in need of quick money and don’t know if you should do it? Then keep reading as we explore the possibilities it englobes.

Even though there are other ways to tap into your home equity, the most common one is a home equity loan. In these cases, the amount of money to be borrowed will be determined by the value of the property, which is calculated by an appraiser from the lending institution. You can also use a Home Equity Line of Credit (HELOC). The main difference between the two is that, when you acquire a HELOC, you won’t get the total sum of your equity all at once, but instead will get a line of credit that can typically last from 5 to 25 years.

Home equity depends on the economic fluctuations. If the economy is healthy and on the rise, most banks and lenders will promote their home equity loan services, and you’ll get more money from them. When this happens, it can be tempting to tap into your home equity in order to fund another project. But it’s a tool that can only be a great choice if you’re a borrower with a great credit history and a steady income that can guarantee you’ll be able to pay back. Otherwise, putting your house on the line like that can prove to be a dangerous risk.

This is why you shouldn’t just tap your home equity to finance things like a car or a vacation trip. One good way to spend it would be to use it for home improvement. This can be great because it means that it will be used to add value to your property, which you can then sell for an even higher price. If you do it during a period in which your house value is on the rise, then it’ll be extra advantageous. You can renovate your bathroom and kitchen or finish up your basement. It’ll pay off in the long run.

You could also use home equity to pay off your existing credit card debts. If they’re making your life miserable, getting a loan can be a good way to solve it. However, you have to be extra careful. If you think having too much debt on credit cards is terrible, imagine getting your house taken away from you because you failed to pay your home equity loan. Tapping into your equity won’t simply solve all your debt problems. It can only be helpful if you already have the means to make sure that you’ll be able to repay it.

Another great and popular use for home equity is retirement. It shouldn’t be your only option when the time comes to retire, but it can definitely add an extra and important amount of money to make your life easier. In this case, HELOC or reverse mortgages can be helpful. When the stock market plummets, retirees can tap credit lines instead of their portfolios, which allows their investments time to recover when the market rises.

Emergency expenses and college costs can also be covered by tapping home equity. In any case, you should be aware that doing it always represents a risk. You need to be aware of what you’re about to commit yourself to when you cash out home equity. For more information regarding these types of loans, call Intercorp Mortgage Solutions and find out more about reverse mortgages.

Source: Intercorp Mortgage Solutions

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