Investing in your home is not just hype: it is the gateway to financial success and a go-to option when facing hardships. Investing in a home will see you build equity nest eggs for the long term.
Besides, you will enjoy reduced expenses due to tax deductions for the short term. In simpler terms, investing in your home is a decision you will be proud you made. Improving the quality of your home is very important — it increases its value.
A house with a high value will work out great for you now and in future. This article discusses several ways investing in your home can help you through the various ups and downs in life.
Paying School Fees
If you have a child in college and are struggling with fees, you can use your house equity to help them. Home equity is higher when the value of your house is up. Home equity refers to the market value of a homeowner’s unencumbered interest in their property. This refers to the difference between the outstanding balance of a mortgage loan and the home’s fair market value. Therefore, you can get a reasonable amount from it to help pay your child’s school fees.
Helpful in End-Life Expenses
Investing in your home is very beneficial, especially in the long term. This is mainly through reverse mortgages. When you are older than 62 years and have considerable home equity, you can borrow against the value of your home. You will receive the funds as a lump sum, line of credit or fixed monthly payment.
This will go a long way in facilitating your senior years, especially if you can’t work anymore. A reverse mortgage is different from a forward mortgage in the sense that it does not require you to make any loan payments.
This type of mortgage might sound more like a line of credit or a home equity loan. However, there are some similarities between these two types of mortgage loans. For instance, a reverse mortgage can also provide a line of credit or a lump sum you can access based on how much of your home you have paid off.
It also depends on your home’s market value. However, unlike a line of credit or a home equity loan, you don’t have to make any loan payments while you still live in your home. You can choose several proceeds to receive when you take out a reverse mortgage. Here are some of them:
- Lump-sum: You will be given all your proceeds at once when the loan closes. In a reverse mortgage, this is the only option with a fixed interest rate. All the others have an adjustable interest rate.
- Term payments: In this option, you will be given equal monthly payments for a set period of your choosing; it can be five or ten years.
- Equal monthly payments: This option works in a slightly different way. For as long as at least one borrower lives in the house as a primary residence, the lender makes steady payments to the borrower. This option is also known as the tenure plan.
- Term payments plus a line of credit: In this option, the lender gives you an equal monthly payment for a set period of your choosing — it can be 10 or 20 years. If you need more money during or after this term, you can access the line of credit.
- Equal monthly payments plus a line of credit: In this option, the lender provides steady monthly payments for as long as you still occupy the house as a primary residence. If you need more money at any given point, you can access the line of credit.
- Line of credit: This is the option where money is available for you to borrow when you need it. You will only pay interest on the total amount you borrowed from the credit line.
Improves Your Credit Score
Investing in a home improves your credit score. Owning a house with a high value will significantly boost your credit score, making it able to access loans. In life, some situations might need to access cash urgently.
The most common and reliable method of surviving difficult financial times is getting a loan. With a bad credit score, you will not access any loans, or if you do, you won’t get a good amount. By investing in your house, you significantly improve your credit score.
However, keep in mind that your payment history determines a large volume of your credit score. It is also determined by making payments on long-term loans like mortgages. Therefore, combined with making payments on time, investing in your house can significantly boost your credit score.
Investing in your home will help you face the ups and downs in life. This article has discussed in details some of the ways it can do so.