Does Your Equity Make You Money?
Ask this question of a dozen people and at least ten of them will say “yes”. These are homeowners that are absolutely convinced that the appreciation in their home is that. They believe that the appreciation in their home and the equity sitting there as a result are the same thing. They ARE related, however the equity itself is not earning anything. It’s just sitting there. In some cases it may be keeping the mortgage lower, but that’s not MAKING money, that’s SAVING it – two different things.
Most of us work to MAKE money, we do not typically work to SAVE it. We more likely would invest to save money, or open up a savings account. What if we were to take that equity and put it to work MAKING, rather than SAVING us money? What would that look like?
Well, first we would have to measure how much money it is saving us by sitting there. To do that you will want to look at your mortgage. How much is it for and what’s the interest rate? What are interest rates now and how much equity could you easily remove and keep your mortgage reasonable? If you cannot answer these questions on your own, simply find a mortgage or wealth coach who can easily analyze this for you, typically for free!
In most cases, you will find that you can take a significant slice of that equity and maintain a great mortgage rate! One other advantage that is often overlooked is that the interest you pay on your mortgage is deductible at tax time. So many people fear paying more interest and less principle but this is not to fear, as it will help you save money yet again! The only reason people are attached to this concept is their parents and/or grandparents (typically survivors of The Great Depression) taught them – out of fear and their own experience – to try their hardest to own their house outright. That’s the only way to be safe, in their eyes. What they don’t consider is the social and economic reform that’s occurred since that period, not to mention laws that were passed, that insure nothing like that can happen again.
Okay, so we’ve established that it is safe, even beneficial to pull some equity out of a home. Now what do we do with it to put it to work for us? You could buy a lottery ticket, but that’s more of a gamble than a job. We could put it into stocks – there is a certain amount of certainty in earnings, long-term especially. But the return on stocks on average, was barely worth refinancing for, if at all. What investment is so safe, so certain to appreciate that the bank will even lend you money to get? It’s real estate.
You can actually put a little of your own money down, say 10%, and the bank will lend you the rest to purchase some real estate. That’s how safe it is! They certainly won’t do that for stocks! I dare you to walk into any bank or financial institution and ask for a loan to get some hot stocks! They’ll laugh you right out of the building! But real estate is constantly appreciating. Even in slow markets and slow areas the values, although they ebb and flow somewhat, typically won’t ever go down. There is only so much land. For Example at 38 Park Avenue Cebu if you pay the deposit of 20% within 30 days of reservation then you get a huge 8% discount on the selling price. Instant Equity
Now you understand the basic principle of making your equity work for you, over and above just having it save for you. If you are interested in pursuing what’s available to you in your specific circumstances, contact a wealth coach or mortgage coach. They will analyze the numbers for you and make some recommendations based on your comfort level. Remember: it’s your choice how, when and where to put your dollars. Choose advisors you can trust and do your homework.