10 Things Banks Don’t Tell You About Home Equity

Home equity is the positive difference between what you owe on your home and its current value. Many Canadians sadly overlook the fact that home equity is one of the most versatile financial tools available to a homeowner.

Banks won’t typically explore all your options to leverage home equity. After all, bankers are salespeople, and their primary objective is to generate income from the financial products that are offered to you. Banks don’t have a vested interest in helping people to achieve financial freedom. It simply isn’t profitable for the banks to do so.

Home equity can be utilized in unique ways like securing a line of credit or borrowing funds to invest in home improvements and increase the value of a home.

Make life’s biggest investment work for you and learn 10 things that banks don’t tell you about home equity.

1: A Home Equity Line of Credit Can be a Lifesaving Emergency Fund

Home equity doesn’t need to be utilized right away. Simply opening a Home Equity Line of Credit can create financial security, even if you don’t need access to funds today.

Experts range on their opinion of how much households should keep as an emergency fund. Some say two to three months of income is enough to have saved. Others recommend up to six months of income to cover situations like losing a job.

Whatever the financial emergency, it could become financially crippling without savings in place. Opening a Home Equity Line of Credit can make funds available, borrowed against the equity that you have in your home. Planning this early is ideal because it can take time to apply for a Home Equity Line of Credit which can add stress to any emergency that arises.

2: You Can Leverage Your Home Equity to Invest in New Property

Your home is the biggest investment that you’ve made in your lifetime. You don’t have to stop there. Investing in new properties can increase your income and help to secure your financial freedom and retirement.

Sure, you’ll be taking out debt against your equity to invest in new property, but this investment is likely to produce a return whether you invest in a rental or a home that you intend to improve and sell. Real estate investment carries risk, but, with the right financial advice, you can make it work for your financial goals.

3: Your Home Equity Can Improve Your Home and Increase Its Value

There are many home improvements that will increase the value of your home or lower your cost of living, allowing you to save, build more equity, and increase your financial security. If you want to work towards financial freedom and eventual retirement, you can leverage your home equity to make improvements in your home.

High-value home improvements are among the most common ways to reinvest home equity. The improvements that you make, if carefully selected, will increase the value of your home, effectively increasing the equity that you have in it.

Taking a loan using your home equity can allow for improvements like new insulation to decrease energy costs, solar panels to cut down on monthly utilities, or high-value renovations in the kitchen or bathroom.

4: You Can Consolidate Debt with Home Equity

Not all debt is the same. High-interest loans and credit accounts could be limiting your financial growth. Even if you’re building equity in your home, your other debt could be eating the bottom line, leaving you in a worse position over time.

Borrowing against home equity with a one-off loan could allow you to clear other debt and benefit from more affordable repayments.

If you decide to go down this route, you may need to ask some tough financial questions. Why are you in debt, and have you made poor decisions or are you living outside of your means? Choosing to consolidate debt by leveraging home equity is a big decision and you’ll need to be sure that you won’t need to borrow more in the future. Lifestyle changes may be necessary to ensure that you are living within your financial means with a clear roadmap to financial freedom.

5: Home Equity Allows for Low-Interest Borrowing

You’ll rarely find a retail banker that will detail all the benefits of using home equity as leverage to improve your financial situation. Banks are interested in high fees and interest rates. Borrowing against home equity results in lower interest rates because the home is used as collateral.

Your bank won’t tell you that your home equity is one of the most important financial tools available to you, with low-interest borrowing that can help you to get ahead, financially.

6: Home Equity Offers a Simpler Line of Credit

You only need to apply once when borrowing for a home equity loan. You won’t need to requalify if the total that you borrow doesn’t exceed the original lending limit. This is helpful because it limits the time that you spend accessing credit and going through application processes. You can eliminate all the hassle that can come from speaking with several lenders on the phone or in a branch.

The credit check, home appraisal, and actual application are only needed once. Borrowing using your home equity can also limit the total fees that you pay to access credit, as it’s technically just a single loan package.

7: The Way You Use the Money is Flexible

Some bankers avoid the conversation around leveraging home equity because the structure of a Home Equity Line of Credit is so appealing. Borrowing is flexible. On a Home Equity Line of Credit, you will have a “draw period” which is the time that the line of credit will be available to you. This is typically over several years, offering flexibility for you to borrow only when you need it.

Most Home Equity Line of Credit accounts have flexible interest rates. The interest rate will be more competitive than a conventional loan or line of credit, but you need to exercise caution as interest rates can change rapidly as the economy fluctuates over time.

Leveraging your home equity is all about versatility, giving you access to a lump-sum loan or a line of credit that helps you to achieve your financial goals.

8: Making Minimum Payments Could Leave You in a Worse Position

Making minimum payments on a Home Equity Lineo of Credit during the draw-down period might not clear the balance before the repayment period. This results in a loan that costs more with a longer period before you regain your financial freedom.

Look at the fine print for information that a banker won’t always disclose in person. Try to keep payments as high as possible to minimize interest and the duration of the loan.

9: Your Banker Might Not Tell You the Best Type of Credit to Consider

The interest rate on a Home Equity Line of Credit is variable, which can make it more difficult to plan your finances in some cases. A home equity loan will have a fixed rate so you can borrow exactly what you need, and you’ll know exactly how much you will repay over the term of the loan. The right option for you depends on your long-term financial goals, what you need the money for, and when/how you will spend it.

Bankers look to protect their profit margins first and will try to sell you what works best for their organization. You will get a fairer and more balanced consultation when you work with an independent private equity firm, and there could be more opportunities available to you rather than traditional credit lines or loans.

10: Your Home Equity is Your Strongest Financial Asset

Banks are quick to tell their customers that a home is an asset, but they’re less forthcoming when it comes to making people understand that it’s the equity in a home where the real value is. Your leverage doesn’t have to wait until you own your home outright. From the moment you are building equity in your home, you have a significant financial resource to draw from. From debt consolidation to an emergency loan, your home equity can work for you.

Speak to Your Local Private Equity Firm to Unlock the Potential in Your Home Equity

Local private equity consultants at 3FC Acquisitions Inc. are ready to help you realize the full potential of your investment in a home. We are a Private Equity Fund Management Company focused on growing financial investments in the private sector. We provide consultation and have a proven history of success investing in profitable business enterprises between five and ten years old.

Our experience in sales, marking, leadership, and management, as well as our extended tenure in the equities market, puts us in the best position to grow our acquisition investments. It also puts us in an excellent position to provide advice and opportunities for everyday Canadians who want sustainable financial success as they work towards retirement.

Contact Wendell John-Baptiste at 905-425-2002 and Gaston John-Baptiste at 289-939-2318 or email us at 3fcacquisitions@protonmail.com to learn more about home equity, its potential for you, and to get started with your free consultation.