Chaos Begets Opportunity

Capitalizing on the current housing and financial market

By Valene Ayar

With all the mayhem going on in the world, it can be very easy to fall into a negative thinking loophole.  And the more we focus on negativity, the more we attract.

The new negativity we attract leaves us feeling even more pessimistic, causing us to draw in even more negativity, and so on.  I think you know where I am going with this.  It becomes a never-ending cycle, a downward spiral into a bottomless abyss.

The reason I am mentioning any of this is to break you out of this pattern and point out an overlooked advantage happening amidst the current chaos; an advantage that most people are unaware of.

The Housing Market
It is a seller’s market. Due to a severe shortage in inventory (available homes), houses are being sold in days, rather than weeks or even months – and often well above asking prices.

Even if your career is not in this realm, you have undoubtedly heard talk of this or read about it somewhere.

Unfortunately, though, if you are unfamiliar with the ins and outs of the housing and finance industries, you are only hearing half the story – and of course, it’s all the ugly parts.  Allow me to introduce you to the “Ugly Truth’s” beautiful twin sister – the very pretty, yet mostly overlooked, “Opportunity.”

The Silver Lining
Because of the inventory shortage, the value of your home has gone up – a lot.

Do you remember me mentioning the shortage of available homes? And the part about people paying more - even tens to hundreds of thousands of dollars above asking price?  Well, guess what? If you own your home, this is fantastic news for you!

You don’t need to be selling your home to capitalize on this seller’s market. Why? Because of the inventory shortage, values are appreciating at an astronomical rate. This is the result of the perfect storm that is our current social, political, and economic state-of-affairs – both nationally and globally.

Your home equity in a nutshell
To put it simply, home equity is the amount of the home you actually own – that is, the amount of the home (expressed in dollars), that is not owned by the lender or bank you got the mortgage through. It is the difference between the current value of the home minus the remaining balance on your mortgage.

For example, let’s say you purchased a home years back at $250,000. You put $50,000 down, leaving you with a $200,000 mortgage; this is your principal loan amount – the loan amount not including interest. Now, let’s say, you have paid off $100,000 of the mortgage, leaving you with a $100,000 principal balance. If your home was still valued at what you paid for it - $250,000 – this would mean you have $150,000 in equity ($50,000 down payment + $100,000 paid off principal amount).

However, your home is not worth $250,000 anymore. It is probably worth more – possibly, a great deal more. For argument’s sake, let’s say the home is now valued at $450,000 (not unheard of in this market). That gives you an extra $200,000 in equity, totaling $350,000.

So what does this all mean?

This is where you win...big.  You are essentially sitting on a piggy bank with $350,000 in it. If you decide to tap into this equity, and take some of it out, you can use that money for any (legal) reason. Some of the most common are:

Renovate or Remodel
This is especially a great idea if you would like to buy a new home but don’t want to do so in this market. You can use the equity in your home to remodel it, add an extension, or even put in that swimming pool you have always wanted. The possibilities are endless. Plus, these changes and updates to your home will also, in turn, increase the resale value for when you do decide to put it on the market.

Debt consolidation
Do you have any other debts besides your home mortgage? Perhaps, credit card debt or student loans; maybe an auto loan you need to pay off? Well, you can use the equity to pay off those debts, which most likely have higher interest rates on them. Isn’t paying 5% interest much more appealing than paying the 16% interest – for instance - that you are currently paying?

College Tuition
If you have kids, or would like to go to college yourself, using the equity to pay for it is much better than taking out student loans, which are frustrating to deal with in the long run. It is estimated that by 2036, a four-year degree will cost upwards of $200,000. The good news about this is that even if your kids are still young and not going off to college any time soon, you can (and should) still take the money out now, and put it into a savings bond, tax advantaged 529 college savings plan, or even a ROTH IRA, for instance, until the time comes.

Investment Opportunities
You can also use the equity as proceeds for an investment. This is especially ideal if you don’t want to go through the hassle of securing a business loan or are looking to expand or improve your current business, or to expand your portfolio by investing in a different business.

How to access this sweet, sweet cash
As I have illustrated above, there are a variety of ways to use the money from your home’s equity. And those are just a few examples - there are countless others. And you have a few different options as to how you access the equity, such as Cash-Out Refinance, Home Equity Loan (or Second Mortgage), or a HELOC (Home Equity Line of Credit).

Each of these options have different requirements and benefits.  Talk to a licensed mortgage professional for more information.

Valene Ayar is a licensed Mortgage Loan Originator with a background in psychology and a lifelong passion for reading and writing. Feel free to email her at valene@thelendingwarrior.com or call/text her at 248.320.2622.