How Your Home Equity Can Be a Source of Wealth

Did you know that your home equity can be a source of wealth? Although not a short-term way to build your supply of cash, paying off what you owe on your home builds your capital in accordance with the worth of your home on the current housing market and can be helpful if you choose to take out any future loans.

Build Wealth Over Time

Your own home equity amounts to the total of money you still owe from the purchase of your home subtracted from the sum of its current market value. Home equity is not a get-rich-quick scenario. Rather, it is a long-term situation which increases your wealth over time. As you pay off what you owe on your home and the market grows, your home equity will grow. The more you pay, the faster your equity—and your wealth—will build.

Access to Credit

Borrowing on your home equity is a good option for when you need to borrow some extra cash to quickly fix structural problems with your home. You can tap into your home’s equity with a loan or line of credit such as a secondary mortgage, home equity line of credit (HECOL), or cash-out refinance.

Of course, preventing the need for structural repairs is always a good idea, such as through proactive, regular inspections now in order to avoid larger, more expensive repairs later. Having regular inspections and other measures can help you avoid costly repairs to your roof, for example. Taking out too many loans could hurt your home equity instead of helping it.

Use Your Equity Wisely

Exercise caution and be careful not to cash out too many loans or mortgages. Some investments can drain your equity without providing economic benefit, so tap into your home equity for improvements and repairs only when necessary.

When borrowing, make sure you are doing so for the right reasons. Remodeling can add to your home’s worth and resale value, for example, and build your home equity and resulting wealth, but be cautious when considering using your home equity to pay for items of depreciating value, such as a car or a boat. Reinvesting money back into your home is a better use of your home equity.

Although you may still owe money on your home, you are not excluded from utilizing your house as a source of wealth—which will build over time. If you need to make structural improvements, purchase a second house, remodel, or otherwise improve your current home, you can do so using money derived from your home equity.

We can help you to figure out how to best manage your finances so you can build the wealth you want. Check out our financial literacy educational resources here!

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