The positive balance between the value of your home and the balance on your mortgage is equity. Did you know that in the second quarter of 2022, more than half of all mortgaged residential properties had equity?
There are two ways that homeowners build equity–by paying down the balance on their mortgage and by market conditions leading to increased home values. The number of homeowners sitting on equity in 2022 is growing.
For many, this influx of equity is a financial opportunity. Let’s take a look at 12 reasons to use home equity.
1. Increase Living Space with an Addition
2. Update Home Aesthetics with a Remodel
4. Get Out of Debt with Consolidation
5. Live More Sustainably with Energy-Efficient Upgrades
6. Cover a Big, Unexpected Expense
10. Invest in Personal or Career Growth
According to a survey by Houzz, a web-based company that connects architects, contractors, and homeowners, home renovations are up. In 2021, upwards of 56% of homeowners were planning to renovate.
The real estate market has been strong, leaving high home prices from coast to coast. This means it’s not a great time to buy something new. Yet, growing families and changing needs have homeowners looking at all their options and, among them–increasing livable space with an addition.
HomeGuide.com estimates the average cost of an addition at $48,000–an eye-popping sum that many are covering by tapping into their home equity.
Next to more space, homeowners are considering home renovation projects to update older homes and refresh their space. When moving to a new home isn’t a smart financial move, a remodel can be an excellent way to get a new look while also increasing the value of a home.
Even if aesthetics aren’t that important to you, consider the added value of an updated home when you are ready to sell. Leveraging your home’s equity with a loan or line of credit can help increase the value of your home even more than current market conditions alone.
Consider using your equity to update a bathroom, finish a basement, or replace your windows.
Today, college costs between $10k and $40k per year–and that’s just tuition and fees. Students also need to cover their living costs, like housing and food, to commit time to study and immerse themselves in the college experience.
Even avid savers face big sums to realize the dream of sending their kids to college. Luckily, a strong real estate market is helping fill the gap. Parents eager to support their growing kids to afford college can access funds through their home equity.
The average American has almost six figures in debt. At the end of 2021, just as inflation began to hit American families in their pocketbooks, the national average for personal debt reached $90,460.
Stagnant wages and rising costs lead to less money, conditions that are ripe for piling on the debt. For individuals motivated to tackle their debt and navigate their way to a stronger financial future, the key might be getting a home equity loan.
Consumers can trade in their high-interest credit card debt for a lower rate and single payment, making it easier to pay off debt faster.
If you’re hoping to green your routines by investing in cleaner energy sources, you might be surprised to learn the true cost of switching to solar or upgrading to energy-efficient windows. While these upgrades can shave hundreds–if not thousands–of dollars off your monthly heating and cooling costs, there is an upfront cost to upgrade your home.
A home equity line of credit is one way that you can begin working towards your goals of living more sustainably with energy-efficient upgrades to your home.
The typical American family has just $8.862 in savings–many have much less than that. Life can throw us curve balls, and even the most diligent savers can find themselves in a bind. Imagine if you woke up one morning with searing tooth pain. A trip to the dentist uncovers thousands in potential dental work–even with insurance, you can’t afford the bill.
Medical expenses, car trouble, a bad furnace in your home–these are all big-ticket expenses that dwindle savings accounts. This, in turn, creates financial stress that hinders job performance and makes it more difficult to get caught back up.
Accessing your home equity to cover big expenses can help you navigate financial sinkholes that might otherwise set you back and cause undue stress.
Are you planning a big wedding? According to Business Insider, the average wedding comes with a $33k price tag. That’s a little more than pocket change. Yet, it’s a tradition that is still common–and even expected in many social circles.
A home equity line of credit might be a good option if you’re looking for a smart way to pay the bill for a big wedding. Planning a wedding involves coordinating with various vendors and paying multiple bills. A home equity line of credit is like a credit card but with a much more attractive rate. Plus, it offers access to the positive balance you’ve accrued in your real estate.
Investing money from your home equity might sound counterintuitive. It’s technically already an investment. However, the real estate market–and the relative value of your home–are long-term investments.
If you’re an avid investor, there are a variety of options that allow you to balance length and risk level in order to optimize the payoff. If you could access your home’s equity and grow that money using short-term investments, the bottom line could net you more in the long run.
If you’ve been waiting to make a move in your career that involves starting or growing a business, you’ve likely considered different options for raising the capital you’ll need to get things off the ground.
You might be overlooking one untapped source of money in your home. An equity loan can provide you with access to funds, using your home as the collateral, easily circumventing the collateral problem that scares most banks.
Another common drain on American savings is the high cost of privatized healthcare. Even with health insurance, treating a medical condition can cost big. A trip to a doctor is several hundred dollars, and a simple procedure–is thousands. And if you land in the hospital, the bill quickly hits six figures. Help pay for your portion of healthcare expenses using the equity in your home, and keep illnesses and injuries from hurting your financial future.
What if the missing piece of the puzzle to your financial security is the ability to make more money by advancing your career? Technical skills are in-demand, and investing in developing those skills can be an intelligent choice that pays off in the long run.
Unfortunately, college degrees, boot camps, and trade schools all come with price tags. The equity in your home can provide a pathway towards upskilling that brightens your financial future through more lucrative career prospects.
What will the next chapter of your life be? If you’re like millions around the world, that ideal next phase might look a little different since priorities shifted as a result of a global pandemic. Suddenly, someday has become today.
Could you travel the world? More flexibility through remote working arrangements makes it more possible than ever. Maybe it’s time to access the nest egg sitting in your home’s equity to enjoy life a little more.
There are generally two kinds of people–savers and spenders. If you’re thinking about how to use your money today to secure your children and your children’s children, the answer is in building generational wealth. In other words, create a legacy for your loved ones.
This type of wealth includes a variety of investments in homeownership and future prospects like paying for college or private school tuition. That means there are many ways that the equity in your home can help provide generational wealth for your children. Consider using this money to enroll in a private school.
Final Thoughts on Using Home Equity
The equity in your home is potentially an untapped resource that can open the door to a brand-new future. Reimagine your space, add more livable square feet, and increase the value of your current home by accessing your equity. Or, invest in yourself or your family by paying for opportunities to advance education or develop skills. There are dozens of possibilities waiting for you to explore what’s possible.
Photo credit: designer491
