Today’s blog focuses on how to save your house from foreclosure. Should you take out a second mortgage in order to tap into your home equity? Or would you be setting yourself up for failure? These are questions to ask your trusted real estate advisor.
Most major lenders have reported an increase in home equity lines of credit and foresee more on the way. Many homeowners choose to take advantage of this option as a source of funds.
While the returns are there and you don’t want to miss out on the benefits, you need to know what’s on the line and carefully analyze the pros and cons before making a decision.
Home equity is the value of a homeowner’s interest in their home that is considered as an asset because it is being added to their net worth. Homeowners have the option to tap into their equity as a source of funding.
Home equities are computed by deducting the value of the current outstanding mortgage loan balance from the actual appraised value of the home.
Example: Your current loan balance is at $150,000 while your current home appraised value is at $200,000, the difference of $50,000 will be your home’s equity value.
With this simple computation, one can easily increase their equity by paying down their monthly mortgage loan while maintaining the value of their home at par or above the current market. (How to Increase the Value of Your Home)
Using your home equity has many purposes including continued payment of your current mortgage balances, refinancing and more:
If one plans to sell their home, the money from that sold property can be used to buy the next home. However, in some instances, that money won’t be sufficient. This is where the funds from one’s equity will come in and be useful.
Homeowners are using their equities to fund college tuition or pay off student loans, home improvement projects and even travel and leisure activities. If you’re not in urgent need of immediate cash, we highly suggest that you invest the funds from your equity line into a real estate investment property which could produce passive income over time.
Use of home equity through Reverse Mortgage plans is an option for those who are 62 years old and above.
Home equities can be used to pay off loans with high interest rates such as credit cards, a first mortgage loan, or even car loans. This is to keep up with your outstanding balances and lessen the burden of possibly falling behind.