Unlocking your Home Equity for Profitable Investments

Monday, July 23, 2012

Unlocking your Home Equity for Profitable Investments

With the banks providing very little return on any savings, investors are looking towards other means to make their money grow. Reliable advice is always welcome. This article discusses why it is wise to unlock some of your equity in order to invest profitably.

Home equity is the name for the difference in value between the balance of your mortgage and the market value of your loan. If you have owned your home for a good number of years, the chances are that you now have a fair amount of equity that you can access in order to make other investments.

Most people think only of paying off their mortgages and have the end date in sight when they will be mortgage free and own their homes outright. Few people realise that you can actually make money from your equity and still be in a position to pay your mortgage off at the end of the term.

Using an equity facility, you can borrow up to the agreed credit limit on your home without the need for taking out other lines of credit. Mortgage rates are generally lower than other rates of loan interest, so this can be a worthwhile use of your existing relationship with your mortgage company. Another means of using your equity can be to secure an additional set term loan so that it is paid back over an agreed term within the existing life of the remaining mortgage amount.

Why invest?

Using your home equity is a sensible move if you are not planning to relocate in the near future. Otherwise, the money is sitting there without earning any interest. Anything that you can do to create a positive return can only be a good thing, although the key is investing wisely. The stock market has traditionally provided a return of around 10%, so with mortgage rates being at their current low, it is an ideal opportunity to make some money.
Even if your investment offered a return of only around 5 or 6 percent, you would still be making money. Of course, there are instances whereby you can make an absolute fortune on the stock market, but most people won't like to take the sort of risks that such returns initially involve.

Property investments

Another way of using your equity in order to make other profitable investments is to look at the property market. This is the ideal time to invest in property, as mortgage rates mean that buy-to-let investments can be very profitable. 

First-time buyers are still having a hard time getting new mortgages and the desire to wait and see what the housing market is going to do have meant that the rental market is booming. Those who are able to tap into this market can stand to make some comfortable returns, so ask your mortgage company if unlocking some of the equity in your home in order to invest in another is possible.

Finding a property

The trick is to find a property that is good value and that will be easy to let. Properties in the catchment area of good schools always do well, as do those close to good transport links. In order to find such investment opportunities, you need to look out for experienced online estate agents, as they will have details not just from your local area, but also from all over the country.

If local, make sure to visit the property before making a decision. Check to see how other properties in the area are maintained, as a rundown area is unlikely to attract potential renters. If you are investing further ahead and you are unlikely to visit your property frequently, it may be sensible to use a good property management company. Such companies can take care of your investment property for you for a small percentage, so you can invest in potentially desirable areas that you may have previously been unable to tap into.


Donna Baxter is a property investor with many years of experience. She writes for a number of property websites about the use of online estate agents to build property portfolios and how to unlock the potential in your own property.

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