If you’re wondering how to use your equity gains, here are five potential options:
1. Trade up or downsize.
As life changes, you may realize you’ve outgrown your house. You may need more space for remote work, virtual schooling, a home gym, or outdoor entertaining. Or maybe you feel like your house is too spacious. You’d like to cut down on your monthly overhead/maintenance and downsize. You might also wish to combine households into one multigenerational home.
Whatever your circumstance may be, you could make this move happen using your home equity. Your equity gains could fuel your move to a larger or smaller house, potentially funding some or all of your down payment. If you have enough equity to make a large down payment, it may help to decrease the monthly payment on your new home—sometimes making it less than what you paid on your previous house.
2. Move to your dream location.
Maybe it’s not your house—it’s your surroundings. One byproduct of the pandemic was the relocation boom. Thanks in part to now-permanent remote work policies at many companies, a record number of home searchers are looking to relocate. Many are also relocating to find more affordable housing.
Relocating may be an attractive choice if you’d like to live closer to family, the beach, the mountains, or a city you’ve always loved vacationing in. Your home equity can help power this move too.
3. Buy another property.
Some homeowners are cashing out on equity to pay for a second home’s down payment. Buying a second property used for vacation or as a rental offers another source of equity gains. (Read more here about how a second home purchase differs from an investment property purchase.) However, there is a potential drawback to consider. Using a cash-out refinance for a down payment might increase your mortgage’s interest rate.
Though rates have risen, you can still build your real estate portfolio if that’s one of your financial goals. Your Academy Loan Officer can work with your financial advisor to assess your current home equity levels and weigh the cost versus benefits of purchasing a second house.
Contact your Academy Loan Officer for a quick—and complimentary—mortgage review.
4. Pay for education.
Maybe moving isn’t in the cards right now, but you’d still like to make use of your home equity. If so, you might leverage your equity—either by cashing out or using a traditional refinance to free up funds by lowering a monthly payment—and put it toward big-picture plans. This may include paying for higher education, planning a wedding or vacation, paying down high-interest debt, or even starting a business.
5. Make repairs or upgrades.
Home equity rises when home values increase. You can also build your equity by paying your mortgage each month, making extra payments, staying in your home for more than five years, and making renovations. For homeowners who don’t intend on selling, it makes perfect sense. You can upgrade and enjoy the home you’re living in, while also helping to increase its market value if you plan to sell in the future.
Cashing out on equity, renovating, and reinvesting in your home is essentially doubling down on your investment. (Note that not all renovations increase a home’s value, so it’s important to plan projects wisely.)
Even if you don’t want to cash out, there are still reasons to review your mortgage. You might benefit from changing your loan terms—i.e., converting from an adjustable to a fixed rate; removing the added cost of private mortgage insurance (PMI), if you’re eligible; qualifying for better loan terms if your credit score has improved; or shortening your loan term to help pay off your mortgage sooner.