Using your home equity

Using your home equity is great way to gain access to funds without taking on a new loan or if you are unable to save up a large amount.

There are many advantages of using your home equity to borrow like having access to equity without having to sell an asset. The additional amount you borrow will remain at the home loan interest rate which in the current climate is significantly lower than other types of credit, such as a personal loan, car loan or credit card. Accessing equity can allow you to purchase another property, upgrade your car, invest in shares or other investments or even to start your own business.

While this can help you invest and increase your overall investments and assets, you should be financially experienced before making this decision and assess whether the decision is financially viable as there are risks when using your home equity.

Your home equity to can be used to renovate or upgrade and while this can increase the overall value of your home, it can also increase your repayments. Sometimes, you can over capitalise and the renovations don’t actually increase the value of the property. Equity can also be used to fund new cars, boats and holidays which isn’t something that will help your financial situation, especially when purchasing depreciating assets.

When it comes to using the funds to invest, you face the risk of not getting the expected returns and increasing your risk. If the investments don’t make the desired returns, you face the situation of making a loss. Again, if you do wish to use your home equity to invest in shares or managed funds, make sure to speak to a qualified financial adviser.

Sometimes people use the funds to cover daily expenses. This won’t resolve your cash flow problems; you will only be adding to them through increased loan repayments.

Don’t forget that by using your home equity, your home is on the line and it’s not a sufficient way to resolve your financial problems. Your home equity should not be used to manage debts such as credit cards, repaying other loans or to purchase depreciating assets such as cars or a boat.

These financial problems can be managed and resolved in different ways such as;

·         Building up savings,

·         Creating a proper budget

·         Tracking spending habits

·         Plan for purchasing new assets

·         Starting an investment portfolio

… without taking on additional risk and creating more debt for yourself.