Equity How To Use It To Your Advantage

When you are making monthly payments and have purchased a home, then you are in the process of building equity. When it comes to homeownership, one of the benefits is having the opportunity to use the equity that you have built up in your home.

You can also use the equity you have built for many purposes on your advantage. Many people will use this equity to draw out cash by refinancing their house; the cash may be use to finance other major purchases such as second mortgage, making major improvement to your property or to fund their children educational expenses.

If you are in a bad debt situation, the hero that can save you from bankruptcy would be your equity. In order for you to borrow a relatively large amount of money to consolidate your debts, what you can do is pledge your equity to apply for a home equity loan. A home equity loan is easier to get approved even if you are in a bad debt situation unlike other personal or unsecured loans and because lenders view home equity loans as relatively safe, they may be more liberal. The lender also has a good chance of collecting the collateral since you can't disappear with your house or hide it if you default your loan.

Your equity can be used for bad debt consolidation as well as for other high-interest rates debt consolidation. Typically, home equity loans have lower interest and this is one of their advantages. This advantage can also be used in order to consolidate all your high-interest monthly payments into a single loan which had a considerably lower interest rate.

On jumbo loans, you are limited to 70% of the property's value and typically, you are also allowed to refinance up to 75% or sometimes 80% of the value of the property on conforming loans. For instance, if your loan balance is $70,000 and if your home is now valued at $150,000, then you might be able to get a new $150,000 x 75% =112,500 mortgage. That would allow you to use the $42,500 for your financial needs and to repay the existing $70,000 balance.

Home equity lines is also another possibility to use the equity to your advantage. Home equity lines for homeowners are offered by many lenders and this allows them to draw cash advances with their credit card or write checks up to certain credit limit.

You should be aware of the pitfalls of these loans before you use a home equity loan or home equity credit line for any purpose. Losing your home is the main thing you should consider if ever you fail to meet the payment schedule required by the loan. Before you do a cash-out with your equity, you therefore need to consider it carefully.

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