Smart Ways to Use your Home Equity

You’ve owned your home for several years, and your payments have added up. Maybe your home’s value has increased while you’ve lived in it as well. Or you’ve made some improvements that have helped make it more sellable. Great job! You’ve built up equity.

What exactly is equity?

Equity is the total amount of money your home would be worth if you were to sell it today, minus the amount you still owe on it. Once you’ve got a decent amount of equity, you’ve got more financial choices at your disposal.

What could you do with it? We recommend you take a sensible approach, with choices like these:

1. Add even more value to your home!

   You can set up a Home Equity Line of Credit (HELOC), which is a designated account allowing you to take funds out of your equity for large purchases. It works just like a credit card, which means it gives you easy access to funds as you need them — but you’ll have to pay it back, with interest.
   
   When you use your HELOC for things like home remodeling or additions, this can be a simple way to add even more value to your home. It’s a good way to take on large expenses when you can’t otherwise save up the cash you need.
   
   Just don’t use your HELOC card to buy tacos on your next snack run — you can technically do it, but it’s not a wise choice!

2. Pay for educational expenses
   Another way to use a HELOC account is to pay off big college loans. This should free up cash for your other monthly expenses, and may also decrease the amount of interest you’re paying. If so, that means you’d pay less for your college loan over time.
   
   Talk to an adviser at Horizon Bank to see if this is a good choice for your particular situation.
   
   
3. Use it to refinance at a lower APR
   Once you have enough equity — usually about 20% of the total loan you took out — you can consider refinancing your home. Most people do this to:

   a) access needed cash (instead of buying a new home to do this)
   b) consolidate other debts into their mortgage so they’ll have a single payment, or
   c) simply get a lower interest rate, if it’s available

   Things to keep in mind: Just like buying a new home, you’ll have closing costs, assessor’s fees, and potentially other lending-related fees to consider. Horizon Bank advisers are happy to provide you with Sensible Advice about whether you’ll come out ahead with this choice.

4. Save it and let it grow even more!
   The easiest and safest way to go is always to simply sit back and enjoy watching your equity grow. The longer you keep your home and stay consistent with making your payments on time, every time, the more cash you’ll have access to when you really need it.

   Want to learn more about HELOCs and other ideas for taking advantage of your home’s equity? Reach out to us, or stop by your local Horizon Bank branch for more info.