Use Home Equity to Your Advantage

If you have cash on hand, credit cards/personal loans, or liquidation of long-term investments you can access then why would you use your home’s equity? Well, because using your home’s equity is typically a better choice when thinking about making major purchases, debt consolidation, or home improvements.

• Cash on Hand – Most financial advisors recommend having at least 6 months of expenses on hand in case of emergency.  The fact is, that the average American has less than $4,000 in their savings account balance for emergencies and only 38% of Americans have an emergency fund at all.  By using your home’s equity to finance large transactions or consolidate consumer debt, you can keep this important fund intact.

*Source: Federal Reserve, US Census Bureau 7.9.2014

• Credit Cards/Personal Loans – Credit cards and personal loans are forms of unsecured debt which have several drawbacks when using them on larger financial transactions.  Because credit cards are unsecured debt, they typically carry higher interest rates.  In addition to that, the interest rates are typically variable on credit cards and any interest that is paid on that debt is compound interest and has no tax deductible advantages.  Using a refinance and taking cash out of your home’s equity gives you low fixed rates and the interest is tax deductible.
  ***Please contact a tax professional or www.irs.gov for the tax-deductible advantages of a mortgage.***
• Liquidation of long-term assets – 401K loans and draws against IRA funds often are not preferable choices for accessing large sums of money.  That money is typically put away tax-deferred and early withdrawals can have hefty penalties to borrowers who try to access those funds.  In addition, the money that is set aside for long-term retirement goals is earning money in interest.  Why take away from the earning potential of these funds when you may have equity in your home that is not earning any type of return?
  ***Please contact a tax professional or www.irs.gov for penalties and repercussions of early withdrawal of retirement assets.***

When it comes to home equity, there are numerous advantages to utilizing those funds over your other options.  The most important thing to realize is that your home’s equity is worthless unless you find a good way to use it.  Converting your home’s equity into usable cash is the fastest and easiest way to instantly change or improve you and your family’s quality of life.