Equity is the value of your home at current market value after deducting the outstanding mortgage on
your home, which is what you would have left over in the event that you sold your property at market
value and repaid your outstanding mortgage. Home equity is built over time; as equity builds, you create
a pool of money which your can utilize it later for many purposes.
In general, it is unadvisable to spend your equity money on things that do not give you ROI (return on
investment) such as frivolous vacations. Use your home equity to clear your bad debts is actually a type
of spending on your equity money. You could avoid yourself from trapping into debts by carefully plan
your budget and spend with what you earn.
A smarter way of using your equity is use it to grow your equity further, spend on things that will bring
you ROI. Ways to use your equity smartly include:
Start Your Own Business
You can use your home equity to borrow a low interest loan to generate the capital necessary to start
your own business. Just be sure that you have a sound business plan in mind and that you have other
safety cushions in place.
During the initial stage of your own business, you could maintain your reliable first income stream (to
protect you against any cash problems) while working to bring your own business up to the stage.
A better home condition will increase your home's resale value. Hence you can dip into your equity
to generate funds for home improvement. Your home improvement project will improve your home
condition and provide you with a more comfortable living, and you could get a higher resale price
whenever you want to sell it. But remember that not all home improvement projects will contribute
equally to your homes resale value.
Growing equity is a great way to generate fund for your children education needs. You can get loan
against your home equity for your children educational needs. Using your equity to invest on your
children education will get them a brighter future and at a better position to compete in the challenging
Improve Your FICO Score
Debt is unavoidable for many people as long as we have credit cards, mortgage or car, but you could
prevent yourself from trapping into bad debts condition by carefully planning your budget and spending
with your financial affordability. Instead, your equity can help you to improve your FICO score. By paying
off creditors, you can improve your FICO score and potentially qualify for a lower refinancing rate. To
make the most out of this process, know your interest rates, for both savings and debts. You can get
help from expert such as an accountant to help you with the calculations. With so many rate variables in
play, its easy to get confused about how to consolidate, how to pick the right term for your home equity
loan, and how much to allocate to savings and how much to allocate to payments.
Home equity is the money you have put down against the principal of your house as a savings account,
be aware that if you fail to budget effectively and over draw your equity. You could lose your house,
wind up in credit trouble, or even have to file for bankruptcy. Hence, use your equity smartly is a great
way to pursue your wealth building.