How to Use Home Equity as Leverage

Tapping into home equity is as natural today as mowing the lawn. Homeowners have many reasons for cashing in on their equity, some of which end up sending them into an even deeper financial hole. To avoid the pitfalls of leveraging, home equity must be used to increase the wealth of the borrower. Follow the suggestions below to leverage your home equity successfully.

Instructions

1. Consolidate your outstanding debt. Decreasing your outstanding debts, outside of your home loans, is a sure way to increase your wealth. Pay off those credit cards, medical bills, collections or judgments. Eliminate any student loan debt also.

2. Remodel your home. Adding that extra room, be it a bathroom or bedroom, can increase the value of your home. Because your home is your biggest asset, you will in turn increase your wealth.

3. Start a business. If you have an idea for a viable business, borrowing against your equity, or leveraging, is a great way to get the startup capital that you need.

4. Put your equity into fixed, but high yielding investments. Bonds are an example. Prudent investing puts your money to work at a faster rate than the home could appreciate. At the end of the investment term, you can pay back the equity loan or reinvest.

Tips & Warnings

• Remember to use the money to increase your wealth. Vacations, new sports cars and a new wardrobe are only a fast way to accumulate debt.

• Consult a financial planner to get the best advice on investments.

• Only leverage your home equity if you plan to keep your home for a substantial period of time.

• Leveraging through investments only works if either you keep reinvesting the equity or put the money back into the home.