Mortgages article: Home Equity Hiding in Your House - Your Greatest Asset

Article Tips > Mortgages

One of the most valuable assets you may have is not your stocks and bonds and your diamonds, but your home. If you are like many individuals, you are not aware of the hidden value of the equity in your home. There are many ways to use this equity. We can only talk about a few of the most popular ones.

You can take out a home equity line of credit and use it for just about any purpose you can imagine-an addition to your home, start up a new business, fund a retirement plan, make investments, or consolidate your debt. The latter is one of the most popular uses for home equity debt. Using the equity in your home, you can eliminate debt that is at high interest rates by paying it off with the proceeds of your home equity line of credit. Besides saving money on interest, you may also receive a tax deduction when you file you taxes.

If you are not aware of these possibilities, it is time to learn about taking out a second mortgage, a home equity line of credit or re-financing your current mortgage. Some people may be afraid to risk such a valuable asset as their home and they do not take advantage of these things because they are afraid they will lose their homes. However, if you inform yourself about how these things work, you can take advantage of them to be able to do things you dream of, such as add a room onto your home or just make an existing room larger.

If you have thought about how you could possibly use the equity in your home, there are many ways this can be done. The possibilities about how to use these funds are as varied as the people who decide to use them. What is the most valuable use for you? Perhaps you should talk to your tax accountant or financial advisor to decide what is right in your circumstances.

As we said, you can take out a home equity line of credit, a second mortgage or you can re-finance your current mortgage. A home equity line of credit is the amount your bank can set aside for you that is the difference between the equity in your home and the amount you currently owe on it. This kind of line usually has a variable rate of interest, or it may be adjusted periodically based on the prime rate. If you have an appraisal that is fairly new, say less than five years old, the bank will probably let you use that to determine the value in the house.

A new mortgage re-finance will be a bit more complicated, since a new appraisal is required and a new note is established. Because of this extra work, many homeowners avoid them, but they are really a good idea since the rates on a second mortgage are better than on an equity line of credit, and they are usually fixed, so you won't get hit with high interest over time.

A second mortgage is closer to a home equity line of credit in that it taps the difference between the existing home loan and the market value of the home. Like the home equity line of credit, there is not usually a need for an appraisal, title search or closing fees.

But the tax benefit exists with all of these options. Any mortgage interest paid, up to the value of the home, is tax deductible on your income tax. Even if you have used the funds for something other than your home, you can take the tax deduction, as long as the total loans are not greater than the total equity in the home.

So what can you use these new found funds for? You can think of almost anything to use them for. One of the most common uses, as we discussed, is home expansion or home improvement. But education costs for you or your children, business startup costs,and many other uses can be found. No matter what you use the funds for, you will find that using the equity in your home for your financial needs is a great idea. You may find that after a number of years of making payments on your mortgage you have built up a nice equity in your home that you can take advantage of instead of having the value of it just sit there.

Michael Benifez reports for http://www.LifeinPalmCoast.com, covering finance, mortgage, debt and insurance topics in Palm Coast, Florida and Flagler county. His recent article on home mortgage refinancing in Palm Coast covers refinance options.