A property is one of the most fruitful investments, and you already know that. But did you know? Your house’s value soars even when you have a mortgage against it. We are talking about home equity, i.e., the difference between the value of your property in the current market and what you have to pay on your mortgage.
Home equity can be used as collateral to secure additional loans like top-up funds. You can use these funds for different purposes, such as home advancements, paying off debts, or investing.
But how to borrow money from home equity and unleash its potential to help you accomplish your financial goals? Let’s find out.
How do I calculate home equity?
To calculate your home equity, you need to estimate the current market value of your home and subtract any outstanding mortgage balance.
You can get an estimate of your home’s value by looking at recent sales prices of similar homes in your neighbourhood. Keep in mind that lenders typically allow borrowers to borrow up to 80% of their home equity. It’s also important to note that the exact amount you can borrow will depend on various factors such as credit score, income, and debt-to-income ratio.
Before making any financial decision, remember that the amount of equity in your home can fluctuate depending on how much your home is worth and how much you still must pay on your mortgage. You can even boost your home equity by renovating and making improvements to your home.
How to borrow money from home equity?
Here are some ways to borrow money from home equity:
1. HELOC
You first option is a home equity line of credit (HELOC). It’s like a credit card that’s tied to the equity you have in your home.
You can release up to a certain amount of money over a set period with HELOC. Just keep in mind that the interest rates on HELOCs can change. So, you must keep an eye on them and make sure you can handle the payments.
2. Home equity loan
Next option is a home equity loan. With this loan, you receive a lump sum of money using your home as collateral. The best part is that the interest rate and monthly payments are usually fixed, making it easier to plan and budget accordingly.
3. Cash-out refinancing
Finally, cash-out refinancing allows you to refinance your mortgage for more than what you currently owe and take out the difference in cash. One of the biggest advantages of cash-out refinancing is that it lets you take benefit of your home’s appreciation.
But keep in mind that you will have to pay more every month, and there’s a chance you might end up owing more on your home than it’s worth.
How to borrow money from home equity without selling it?
A home equity release loan may be the best option to access home equity without selling it. It allows you to mortgage against the value of your property and receive a lump sum or regular payments.
How much money you can get your hands on will depend on factors such as your age, the value of your property, and any outstanding mortgage balance. This can impact any plans you have for selling or refinancing your home. In this scenario, professional experts can help you understand how to release equity from your home without any blunders.
Before deciding to get a home equity release loan, it’s crucial to understand the loan’s terms and conditions, such as loan against property interest rates and fees. You should also calculate your home equity using recent sales data in your area to determine how much money you can borrow.
Furthermore, speaking with a financial advisor or mortgage professional can help you understand how to borrow money from home equity. Overall, home equity is a beneficial resource that can provide you with various advantages and possibilities.
Things to consider before getting top-up funds from home equity?
If you’re thinking about getting a top-up loan against property, there are a few things you need to know before your home equity release.
1. First, you’ll need to have enough equity in your property, which is simply the difference between its value and the remaining balance on your current loan.
2. The greater your equity, the more you can potentially borrow.
3. But remember that taking out a top-up loan will add to your overall debt, so it’s worth taking the time to think through your financial situation before jumping in.
It is better to carefully go through the guidelines before moving forward. Do your thorough research on how to borrow money from home equity.
Final Words
Utilising the equity of your property can be a smart financial decision when you need additional funds. By borrowing against your home equity or releasing it through a loan, you can access cash that can be used for various purposes such as home improvements, debt consolidation, or even funding a new business venture.
If you need additional funds, Tata Capital will help you meet your financial goals. We offer loans against property up to Rs 5 crores at attractive interest rates and flexible repayment periods. Moreover, our loans are multi-purpose, so you can meet your diverse financial needs with one loan and still retain the ownership of your property. Visit our website to know more.
27 November 2023
5 mins read
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