A home is a wealth-building asset when you have paid off the mortgage, more so if you have enough of an income to pay cash. Once your mortgage is paid off, you can leverage your equity to access funds for retirement or other wealth building activities.
Your home equity is simply a measurement of how much of your property you own, i.e. how much you’ve paid for versus how much mortgage is left to pay off. For instance, if your property is worth $200,000 and you have $150,000 left on your mortgage, your home equity is $50,000.
Borrowing against your home equity has long been a way to get lower interest rates for your borrowing. You use your home as collateral, which allows you to borrow up to 80% of the value of your property if you need more money than you can get from a personal loan or credit card.
Debt can be a good thing: If you acquire it wisely and pay it back. After all, debt is simply another form of investment, and investing in yourself or your business can be a great way to increase your personal wealth.
If your maximum line of credit, for example, is $20,000, and you pay off $5,000 of the $10,000 that you’ve borrowed, then your available credit becomes $15,000 ($20,000 – $10,000 + $5,000 = $15,000). A HELOC can significantly reduce the rate of interest paid on a loan. If you have a fixed rate home equity loan or mortgage, your costs will not fluctuate with the market. This can be a great option for someone who would like to build equity but has no immediate use for it. On the other hand, there is no ceiling on how much money you can take out via a HELOC. If you need additional money and have the available funds available in your HELOC account to cover it (depending on the terms of your home equity line), then this can be hugely convenient if not somewhat risky.
HELOCs are second only to mortgages as the largest contributor to the growth of household debt, thanks to their accessibility and flexibility. They’re also frequently used by consumers who have high credit scores and substantial assets, since these factors make a borrower more likely to repay their HELOC debts. But it’s important to remember that many people take out HELOCs with unrealistic expectations about what they can use them for.
Renovations.
Renovations, which account for the lion’s share of loan spending, may actually be a wise investment if the homeowner plans to sell the property at some point. Depending on the location and the real estate trends there, renovations can increase the value of the property.
Stock market.
Purchasing stocks is known to be high risk, but a quote from Investopedia is worth mentioning: “There are no perfect definitions or measurements of risk.” Market volatility is definitely a concern, but some stocks carry more risk than others. This will depend on many factors like industry sector, economic trends, and the company’s history and profile. When investing in stocks, the first thing one must take into consideration is the expected returns versus the cost of acquiring the debt used to pay for them.
Business.
Many entrepreneurs make the mistake of putting their business expenditures on credit cards. The high-interest rates can be fatal to an enterprise; when the company hits a downturn, which is common for any business, those debts can balloon faster than people realize. Borrowing against one’s house is a cheaper way to start a business or fund its expansion.
Education.
When making the decision to pursue further studies, you must ask yourself whether or not education is a good investment that can realistically benefit you financially in the long run. One thing to note is that education is something that, unlike a house, cannot be foreclosed or taken away from you, but that is not to say that a diploma will automatically increase your wealth either.
Investment property.
Some will opt to make another real estate investment using their existing homes as leverage. A residential, commercial, or retail property can be rented out and turned into self-liquidating assets
Diversification is one of the first and most important steps to managing your risk. By spreading your investments over different asset classes, such as stocks and bonds, you can reduce the risk associated with being fully invested in only one type of investment.
Investing any type of debt into one’s portfolio can help increase your personal wealth. However, treating it as an investment strategy means that you will need to take into account a number of factors, including: Your existing assets, And how much risk you are willing to take on.
If you are a first time home buyer, or an investor, reach out to H. Jaggi homes. We will make your process easy to navigate and answer all your questions in this journey. As a team of experienced realtors, we can help you get into home ownership or start your road to real estate investing! It is easier than you think!
If you are a first time home buyer, or an investor, reach out to Team Singh YYC. We will make your process easy to navigate and answer all your questions in this journey. As a team of experienced realtors, we can help you get into home ownership or start your road to real estate investing! It is easier than you think!
