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Maximizing Home Equity
By John Mussi, Thu Dec 8th
Maximizing home equity is an option that more and more peopleare contemplating. With both home ownership and personal debt onthe rise, a large amount of emphasis is being placed on homeequity as a form of loan collateral. The reason for this issimple... equity allows lenders the security of a high-valueitem as collateral while allowing you the ease of dealing withmatters of paperwork instead of tangible objects when securing aloan. Unfortunately, a large number of people are unsure ofexactly what equity is and are even more unsure of how to use iteffectively. If you are one of these people, don't worry... the informationpresented below is here to describe what equity is and the mostcommon ways that it's used, as well as when to use it, when notto, and how to get the most out of it when you do decide to useit. What Equity Is and How It's Used
Equity is a measure of how much of your home or other realestate you actually own, and as such is a measure of how muchyour property is actually worth without the remaining mortgagelien on it. It is equal to the percentage of your mortgage thathas been paid to date, and it's value is determined bysubtracting the remaining mortgage amount from the total valueof
your property. It is used most often as collateral to secure loans or lines ofcredit, the uses of which range from debt consolidation and loanrefinancing to automotive financing and home improvement. Borrowing against equity reduces the amount of equity that youhave in your home (since that portion is once again under alien), but the remaining equity still continues to grow overtime. When to Use Equity and When Not to Use It As equity grows in value over time and takes time to build tosignificant levels, it's not always appropriate to use yourequity as collateral. Generally, you should only use your equityonce it has risen to at least 25% or more of the value of yourhome (though the higher the percentage is, the better); eventhen it should only be used when the loan or credit line is forsomething important. If there are alternative forms of collateral that can be used tosecure loans or credit lines while your equity is growing, theyare usually a better option... as your equity begins to growover 50%, though, this becomes a bit less of an issue. On the other hand, equity should not be used as collateral forfrivolous loans or for high-risk investments unless you havesome alternate plans for loan repayment... and even then it'sbest if you find some other form of collateral since there is atleast a chance that you'll have nothing of value to show for theloan afterwards. Enjoying Your Equity It's important to remember that equity represents an investmentthat you've made over years, and as such should be considered anacceptable form of collateral for many loans after is has hadseveral years to grow in value. Many individuals allow their equity to grow until the house thatthey're paying on has been completely paid off, and thenestablish credit lines to help them prepare for retirement or todo the things that they've always wanted to do. While it should not be treated frivolously, it should also notbe feared... the most important thing is making sure that it isused for something significant, so that the repayment of theequity loan isn't something that you regret. You may freely reprint this article provided the followingauthor's biography (including the live URL link) remains intact: About the author:John Mussi is the founder of Direct Online Loans who helphomeowners find the best available loans via the www.directonlineloans.co.uk website.
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