Housing equity plans

When the going is good and home prices keep rising, the gap between the resale value and what you owe on the mortgage keeps widening. So, if your home is worth $250,000 but the mortgage debt is only $100,000, the equity is $150,000. That’s a big slice of unrealized capital value just sitting there. You may have the same result by different means. No matter what happens to the resale value of your home over the years, you may pay off the mortgage. That means the entire value of your home is an asset.

That gives us two different scenarios. Younger owners may decide they want to cash in the rising capital value of their home with an equity loan or line of credit. This gives them immediate spending money. A “cash out” loan can be secured as a second mortgage or the line of credit can be charged on the equity. Alternatively, the motivation for the loan may be to finance some big ticket item like home improvements. All these options work well so long as the resale prices keep rising, but the plan creates problems if house prices fall because now you’re in negative housing equity territory, i.e. you owe more than your home is worth. Worse, there are few buyer out there willing to pay your asking price.

The second scenario is slightly different. This sees the house as savings. A couple might maximize payment of the mortgage so that, when their children are ready to go to college, they can refinance to pay their tuition fees. This would be an alternative to an endowment insurance package. Or a couple might sit on their home as an asset until they are ready to retire. Then they cash out the equity and buy an annuity. This gives them income to supplement the pension and gives them a comfortable retirement.

Whichever the scenario, both groups need to ensure that they get the best deals. Using a site this gives you maximum access to the lenders with available funds. Comparing the quotes gives you the best chance of find a deal that will suit your needs.