When you purchased your home, you probably had a mental list of wants and needs. While most of your “needs” boxes were checked, maybe you sacrificed some of your “wants.” Perhaps you settled on a smaller kitchen because you knew there was potential to expand. You may have really wanted a pool, but based on the size of the backyard, you knew you could always add it later.
As time passes, your home’s value may increase, and you come to have equity in your home. Equity is the difference between what your home is worth versus what you currently owe.
Value of your home: $250,000
Amount owed on home: $200,000
In the above example, you owe $200,000 on your home, but it appraises at $250,000. This means you have $50,000 of equity in your home. You are able to borrow this equity with a home equity loan. However, you may not be able to borrow all $50,000 of your equity. Other credit factors and lender limits are included in determining the exact borrowed amount.
Renovating your home
By using some of the equity you have built up in your home, you can finally do those renovations you’ve been dreaming about. Plus, you can enjoy a return on your investment in a couple of ways.
- By renovating, you will most likely further increase the value of your home. For example, if you add a pool to your backyard for $35,000, your home value may increase by $50,000. Even a small remodel could give you an increased value depending on your market.
- Also, you will be able to enjoy your home more by doing those renovations. Just think how much more fun summer will be when you’re able to entertain by your new pool.
Improving your life
You also have the flexibility to use the equity in your home for just about any purpose. You could finally take that dream vacation or even use it to pay for your child’s college education. Or maybe you need to consolidate debt or pay off some medical expenses. The possibilities are endless.
Additionally, since a home equity loan is a secured loan, the interest rates are usually much lower than unsecured loans, such as credit cards or personal loans. This will help you save more money each month by paying less interest.
Start using the equity in your home today
Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.