Home equity is the value of your property in which you have the only interest and none else is a part of the home’s that market value. So, you can come to the conclusion that home equity is the market value of your property subtracted from the total value of your property on which a lien exists. The lien so existed by a third party on your property could be for the reason of mortgage, home loan, creditor or any such. Home equity is the value of your property that you shall get in your hands if tomorrow you decide to sell your house property. Home equity has varied uses and you can use it effectively to plan out your finances and optimize them.
In Canada, at any point of time, the minimum value of home equity any homeowner should possess is 20% of the value of the property. Which means it is only up to the size of 80% of the value of your property that you can borrow a loan of. We can bring out from the above that one can gain home equity in his property through two ways
- If the market value of the respective property increase
- If the homeowner pays back the principal or clears the obligation towards the lien that exists upon the property
How To Utilize Your Home Equity
-Take it out and invest it
If you have home equity higher than 20% of the property value, and you have investment opportunities knocking on your door that shall give you a better rate of return than the net cost of borrowing on your home equity, then you must opt for a mortgage against the home equity available to you.
-Take a loan against it
If your finances are tight and you still want to purchase a house property, then go for a home loan against the equity that you would be so receiving after the house purchase.
-To cover planned expenses or save for planned expenses
If you have planned expenses that are important, or you have pre-planned future expenses, then home equity can be a good source of finance for such expenses.