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If you own your home, then you are building equity. Equity is the difference in what you owe on your mortgage versus what your home is worth, and it’s a secured way to fund many different life needs. From college to home improvements to paying down debt and planning for the future, use your home equity to help you get a leg up and to plan for a healthy financial life. Here are five different ways that you can use the equity you’ve built up in your home to help plan for your future.
Fix Up Your Home
Use your equity to remodel your kitchen or bathroom or to put in that swimming pool you’ve always wanted. You’ll be using that equity to improve the value of your home, and when you eventually sell that home, you’ll find that you are able to make a bigger profit. Plus a home equity loan or home equity line of credit is almost always a lower interest rate than any credit card or other loan option available, provided you have plenty of equity built up in your home and a solid credit score and repayment history.
Leverage Your Equity
If you’ve got some equity built up, consider using that money as a down payment on an additional property to rent out. You can use $20,000 or $30,000 of your home equity as a down payment on a second property, then rent that out for additional income, turning your equity into an asset that can continue to pay you year after year. Just be sure you’re in a place where you have the time and commitment needed to rent out your own property, as there is always a significant personal investment as well.
Improve Your Skills
Another great use of your home equity is to use it to pay for college classes. Finish your degree or just use it to take a few extra classes to better your skills. Then you can use those newly gained skills to get a better job or a promotion. You’ll find that the equity loan is usually a far better option than putting that class on a credit card, and it may even be a better rate than the federal student loan rates. Plus, there is no better use of home equity than dedicating that money to invest in yourself.
Your credit cards are a higher interest rate because there is no collateral. If you’ve been working on your credit score, but you still have high interest rate credit cards, then you’ll want to use your home equity to get rid of that debt. Apply for a home equity loan and then use that money to pay off your credit cards. Your monthly payment will be smaller because the home equity line is a lower interest rate than your credit card, since your home is your collateral. Of course, be sure to stay strong and avoid the temptation to start charging on those credit cards once you’ve paid them off. Keep one for emergencies, then get rid of the rest.
Diversify and Invest
If you’ve already planned well and don’t need your home equity for paying off debt or remodeling your home, then consider using that money to invest in additional properties, leveraging your money or even investing in other types of funds. This one can get pretty specific, so it’s important that you seek professional advice with an accountant or financial planner. However, there may be a way that you can use your equity to continue paving the way for a stronger financial future for you and your whole family.
Deborah Flomberg is a theater professional, freelance writer and Denver native. Her work can be found at Examiner.com.