Equity is the value of your home at the current market price minus the amount you still owe on your mortgage. This is how much you would have left over if you sold your home at the current market price and paid off your mortgage. Over time, you can build up equity in your home. As your equity grows, you create a pool of money that you can use for many things in the future.
In general, you shouldn't spend your equity money on things like vacations that don't give you a return on investment (ROI). Use the equity in your home to pay off your bad debts is a way to spend your equity money. You could avoid getting into debt if you planned your budget carefully and only spent what you earned.
A smarter way to use your equity is to spend it on things that will give you a return on investment (ROI). Some smart ways to use your equity are:
Start a business of your own.
You can get a low-interest loan against the value of your home to get the money you need to start your own business. Just make sure you have a good plan for your business and other safety nets in place.
During the early stages of starting your own business, you could keep your first reliable source of income (to keep you from running out of money) while you worked to get your own business to the stage.
Home Improvement
Your home's resale value will go up if it is in better shape. So, you can use the money in your equity to pay for home improvements. Your home improvement project will make your home better and give you a more comfortable place to live. You may also be able to sell it for more when you're ready. But keep in mind that not all projects will increase the value of your home in the same way.
Education for Children
Building equity is a great way to get money for your kids' schooling. You can get a loan against the value of your home to pay for your kids' college. Investing your home's equity in your kids' education will give them a better future and help them compete in the tough job market.
Increase your FICO score. Many people can't avoid debt as long as they have credit cards, a mortgage, or a car. However, you can avoid getting into bad debt by carefully planning your budget and spending only what you can afford. Instead, the value of your home can help you raise your FICO score. By paying off your debts, you can raise your FICO score and possibly get a lower rate when you refinance. To get the most out of this process, you should know your savings and debt interest rates. You can get help with the math from a professional, like an accountant. With so many rate variables, it's easy to get confused about how to consolidate, how to choose the right term for your home equity loan, and how much to put toward savings and how much to put toward payments.
In conclusion,
Home equity is the money you have put down on the principal of your house as a savings account. Be aware that if you don't have a good budget and use too much of your equity, you will lose it. You might lose your house, have trouble with your credit, or even have to file for bankruptcy. So, a great way to build wealth is to use your equity in a smart way.
