Saturday, July 2, 2016, AM | Leave Comment
Treating your home like a piggy bank isn’t necessarily a good idea, especially if you are tapping your home equity to pay for things like vacations.
However, there are some good reasons to take advantage of your home equity.
Here are some ways to use your home’s value to save money.
One of the best ways to save money using your home equity is to consolidate debt. Professionals, like those at Succeed At Eagle, realize that debt is something serious to consider when buying a home.
However, home mortgages usually carry some of the lowest interest rates of all loans because they are secured by your house. That means you can use that equity to consolidate other types of loans that carry higher interest rates.
You can either refinance your mortgage to tap your equity and pay off your higher debt, or you can take out a second mortgage or line of credit and use the money generated to pay off that debt.
In either case, you have to keep in mind that you are putting your house at risk of foreclosure if you can’t make the payments.
Save Money on another House
Another way to use your home equity to save money is by using it in the purchase of another house.
You might refinance or open a line of credit to come up with a large-enough down payment on your next home so you can avoid mortgage insurance.
You might also use your equity to help buy a vacation home or investment property or to help a child or other family member buy a home.
Get Rid of Mortgage Insurance
If you originally purchased your home with less than a 20 percent down payment, you likely had to pay for mortgage insurance, which you either pay in a lump sum annual payment or as part of your monthly mortgage payment.
Mortgage insurance has a schedule that denotes when it will end, but you may be able to get rid of it sooner if your home has appreciated faster and has at least 20 percent equity.
To get rid of mortgage insurance early, you have to have your home appraised and then refinance your mortgage.
If you have at least 20 percent equity, you can save thousands of dollars by getting rid of your mortgage insurance ahead of schedule.
Using your home equity to save money can be a smart financial move, but you need to weight the possible drawbacks and ensure it is the right move for you at the right time.
Rachelle Wilber is a freelance writer living in the San Diego, California area. She graduated from San Diego State University with her Bachelor’s Degree in Journalism and Media Studies. She tries to find an interest in all topics and themes, which prompts her writing. When she isn’t on her porch writing in the sun, you can find her shopping, at the beach, or at the gym. Follow her on twitter and Facebook.