Take out your home's equity while rates are high

Get All the Equity From Your Home Now, While Rates Are High

By Mark Barnes

Direct Lending Solutions Staff Writer

Home equity is your own personal money machine. If you want financial freedom, a home equity loan is probably the best way to achieve it. When mortgage rates are high, some people are afraid to do anything related to home loan finance. This might be a big mistake.

If you take the equity from your home, you can pay down credit cards, pay off cars, both at high interest rates, or you can actually use your home equity to invest and build the money into a fortune. And in most cases, the home equity loan is tax deductible. The biggest problem people run into with home equity is that they don't have enough of it. Sometimes, however, the problem may be with your lender and not with your equity.

In order to know how much equity you have in your home, you must first know what you owe on your mortgage and then how much your home is worth. Here's the secret to getting the most equity out of your home or investment property.

Let's say you own $100,000 on your home or investment property, and you believe it is valued at $150,000. If a bank will loan 90 percent of the value (some lenders will loan more), they'll give you $135,000 minus what you owe, or a $35,000 home equity loan.

But wait just a minute. Let's suppose the bank tells you that they believe your home is valued at $130,000. Now, they'll give you a home equity loan of just $17,000 (117k minus the 100k that you owe). That's a whopping $18,000 less than what you thought you were getting.

The answer to this dilemma in most cases is simple. Educate your lender. This happened to me recently. The lender had my home valued at $15,000 less than I said it was. So, instead of giving up on my home equity loan, I simply educated the lender.

I explained that I had $25,000 in simple appreciation, based on the four percent that homes in my neighborhood receive. Then, I said I had $12,000 worth of improvements in the past two years. Finally, I asked for a complete appraisal, instead of the recent sales in the neighborhood that the bank was using. Now, this increased my closing costs a bit, but it was well worth it.

In fact, a couple of days later, the lender called to inform me that the full appraisal came in $7,000 higher than the number I gave them. Now my equity loan was even bigger than I had originally hoped - 90 percent of that additional $7,000 gave me a $6,300 more to play with!

You see, our instinct is to always trust that the lenders and mortgage brokers know more than we do. In many cases, this is not true. So, when rates are high, check into a home equity line of credit; they're not too expensive to get, and when you pay back interest only, you save huge dollars on this productive home loan.

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