Using the equity in your home.

     All the ideas indicated earlier are really good for paying off your mortgage faster and paying less overall interest, but what can you do with the equity in your home? Wouldn't it be great to use that money just sitting there? Homes are one of the only assets you buy that appreciates in value and allows for easily assessable options to use the equity tied up in that home. The two ways to access that equity is through a second mortgage or a home equity line of credit (HELOC). The equity in your home can be used for many purposes including paying for children's education, travel, paying off other debts, investments, or whatever you can imagine.

     The second mortgage is for a specific loan amount at a fixed interest rate for a specified duration. A HELOC is a revolving credit limit with check writing capabilities at an interest rate based on the prime rate plus or minus some percentage. The prime rate is based on the rates set by the Federal Reserve. The extra percentage depends upon the mortgage company. The HELOC is a great way to have instant access to a large sum of money. Some people use the HELOC as a way to pay for everyday expenses while using that same money to invest in some manner in which a greater rate of return is achieved than the interest rate for borrowing that money (i.e. stock market or real estate). The HELOC is a really good option if the prime rate is decreasing, but a second mortgage is a better option if the prime rate is increasing. Although, the HELOC offers more flexibility than the second mortgage. The decision on how to use the two options is up to you.

     Many homes increase in value substantially. Therefore, the amount of equity available will increase. The way to access the additional equity is to refinance the second mortgage or HELOC to access a larger amount. Shop around with different mortgage companies to find one with the lowest closing costs or even one who will absorb all costs associated with the closing.

     Both options offer an interest only payment option. As discussed in an earlier section, use that lower payment to your benefit and not simply as a means to access more debt to spend frivolously.

     CAUTION: Do not use these options to get yourself further in debt. Instead use these options to enhance your financial situation.


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