Increase The Value Of Your Home
Another great way to build home equity is to increase the value of the property. For instance, you could invest in interior remodeling, landscaping, solar panels or technology to make your home more energy efficient. Before deciding to spend on a remodeling project, make sure the improvements will give you a high return on investment . Fixing up the kitchen, building a patio and replacing the roof are great ways to increase the value of your property.
How this affects equity in your house: By increasing the value of your home, you can increase your home equity, even without changing the amount that you owe. When taking this approach, however, remember that overall market conditions can have an effect on your homes value, too. And not all renovations will increase the value of your home, so choose improvements wisely.
How To Calculate The Equity You Have In Your Home
Your home equity is the difference between the appraised value of your home and how much you still owe on your mortgage. In laymans terms, it represents the amount of your home that you actually own. For example, if your home is appraised at $200,000 and you owe $120,000, then you have $80,000 of equity in your home. The rest is the part of your home still owned by the bank.
Remember that lenders will still impose a maximum amount you can borrow, often 80 percent or 85 percent of your available equity so a new loan or a refinance makes the most sense if the value of your home has increased or youve paid down a significant portion of your mortgage.
Youll have more financing options if you have a high amount of home equity. Borrowers generally must have at least 20 percent equity in their homes to be eligible for a cash-out refinance or loan, meaning a maximum of 80 percent loan-to-value ratio of the homes current value.
How To Keep Your Investments Safe
One of the most important things to remember when investing in the stock market is that you don’t lose any money until you sell your stocks. The market could plummet tomorrow, but as long as you don’t sell, you haven’t lost any money.
Holding your investments despite market volatility, then, is a smart way to keep your money safer. The market may dip and your stocks may decrease in value, but as long as you’re buying the right investments, there’s a very good chance they’ll recover. When that happens, your portfolio will bounce back stronger than ever.
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How To Release Equity From Your Home
If you don’t want to move home or downsize, you can remortgage to borrow against the value contained in your equity. This works by taking out a new mortgage that is larger than your existing mortgage.
For example, if the value of your home has increased from £150,000 to £200,000 since you took out your old mortgage, remortgaging enables you to cash-in on this increase in value without moving.
If you owed £100,000 to your existing mortgage lender, but you get a new mortgage of £120,000, you would be left with £20,000 extra, although there are various fees that will eat into that .
Because of the increase in value of the home, your loan to value ratio has still dropped, but you’re borrowing and paying interest on a higher amount.
Other Options Besides A Cash
What if you cant qualify for a conventional loan cash-out refinance? You may have other options including:
- Personal loan If you need cash to fix up the home, an unsecured personal loan may offer the cash you need. You dont have to put your home up as collateral and you can use the funds as you need without getting approval from the bank.
- Home equity loan You can take out a home equity loan or line of credit on your owner-occupied property. You can usually take out up to 80% of your homes value, using the funds as needed. This could include using the funds to fix up your investment property to increase your profits.
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Experience The Upside Of Debt
The potential upside associated with taking out a mortgage shows that debt isn’t always necessarily bad. When used properly, it can help you generate income and increase your total net worth. In addition, a mortgage is also one of the most inexpensive kinds of debt. Interest rates are low and federal and state tax breaks make it possible for you to pay even less after taking the mortgage deduction. Instead of putting all of your cash into the home purchase, you can invest it wisely in long-term, diversified assets and in the event of an emergency, you’ll have easier access to cash if it’s not all tied up in your home. There are also advantages of leveraging a good investment by borrowing to buy a home that may appreciate in value. With a little bit of forethought and some careful planning, you can use mortgage financing to turn the purchase of a great asset into an opportunity to strengthen your overall financial situation.
1 “The Tax Cuts and Jobs Act,” IRS.gov
Is It More Important To Pay Off Debt Or Build My Savings
The answer to this question is specific to you, but there are a few guidelines that can help in making this choice.
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Tips On Separating From Your Partner
The Australian Securities and Investments Commission MoneySmart website provides a checklist for someone going through separation.
Some of those steps are listed below:
- Close joint bank account and open up a separate one in your name.
- Consider cancelling your redraw facility or at least ask your lender that any withdrawals require joint signatures.
- Contact the Department of Human Services to find out what payments and services you may be entitled to as a result of the separation, particularly if you have children.
- Divorce doesnt automatically cancel your will and the beneficiaries youve listed so update it with help from your lawyer.
- Update your superannuation details, specifically the list of beneficiaries.
Why Should I Remortgage
When you first took out your mortgage, you might have signed up for a really good deal. But over time, the mortgage market changes, and new deals become available. This means there might be a better deal available for you now, which could save you hundreds of pounds.
You wont necessarily have to change lender.
Remember to check if there are any arrangement or product fees on any new mortgages youre looking at, and if youre ending your mortgage deal early, any early repayment charges from your existing lender.
These fees can add to the cost of remortgaging and might make remortgaging more expensive than staying on your current deal.
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Can You Deduct Your Mortgage Points
Your mortgage lender might allow you to buy discount points. Discount points allow you to pay money up front to buy down your interest rate. Though these points are deductible, you cannot deduct the full amount you pay the year you refinance. Instead, you must spread the cost over the total course of your loan.
For example, lets say that your lender allows you to purchase $1,500 worth of discount points on a 15-year refinance. You would be able to deduct $100 worth of discount points from your taxes for each year that you hold your loan.
Remortgaging To Buy Out Your Partner
Remortgaging is when you take out another or a different kind of mortgage on a property and is one of the mortgage buyout options you could consider.
If you want to remortgage to buy out your partner, there are several ways you can do this:
- Remortgage your home with the same lender by affecting a product transfer, or internal remortgage. This is simply a straight swap, sometimes at a more favourable rate. Your lender may wish to reassess your eligibility since you are effectively applying to take over the same lending terms by yourself and they will want to make sure you can afford the mortgage repayments on your own.
- Switch to a new lender. This option would give you a totally clean slate and may be beneficial since your new lender will be assessing you in a fresh light, rather than with the view that you used to hold a joint mortgage. Your new lender will pay the money released to your original mortgage provider, effectively paying off your old mortgage and continuing the new mortgage on the agreed terms.
- Want to keep the property you shared with your partner, but prefer to move somewhere new? If you want to buy out your partner in a mortgage, but prefer not to remain living in the home you shared with your ex, its possible to keep the property but let it to tenants with a buy to let mortgage you could also release equity to buy another property.
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How Much Equity Can I Release
The amount of equity you can release will depend on a wide variety of factors including how much equity you have, the value of your home, the outstanding term of your mortgage and your age. Lenders will be more cautious about lending to older borrowers.
Your income, affordability and credit rating will also be taken into account.
You can try online remortgage calculators to find out how much more you could borrow – many lenders and brokers offer them on their websites. For a clearer picture it may be worth speaking to a broker.
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How Remortgaging To Release Equity Works
When you remortgage to release equity, you ask the lender to add the amount you want to release to your current mortgage loan.
Say you have a property thats worth £300,000 and an outstanding mortgage of £200,000. To raise £20,000, you would ask to remortgage for £220,000, rather than £200,000.
You can ask to remortgage with your current provider, called a product transfer, or remortgage with a different lender. Using comparison sites or a broker can help you find the best remortgage rates, but check what your current provider can offer too.
As well as reviewing the interest rate charged and monthly payment, review other costs before going ahead. These can include early repayment or exit fees for leaving your current agreement, along with solicitor and setup fees for the new deal.
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Find Ways You Can Cut Your Spending
If your expenses are so high that you cant save as much as youd like, it might be time to cut back. Identify nonessentials that you can spend less on, such as entertainment and dining out. Look for ways to save on your fixed monthly expenses like television and your cell phone, too.
Here are some ideas for trimming everyday expenses:
- Use resources such as community event listings to find free or low-cost events to reduce entertainment spending.
- Cancel subscriptions and memberships you dont useespecially if they renew automatically.
- Commit to eating out only once a month and trying places that fall into the cheap eats category.
- Give yourself a cooling off period: When tempted by a nonessential purchase, wait a few days. You may be glad you passedor ready to save up for it.
Can I Remortgage My House To Buy Out My Partner
Remortgaging your house to buy out your partner should be possible, and is often the preferred way for people who are seeking a mortgage buyout agreement.
It may be possible to remortgage your home with the same lender by affecting a product transfer, or internal remortgage. This is simply a straight swap, sometimes at a more favourable rate.
Your lender might reassess your eligibility since you are effectively applying to take over the same lending terms by yourself and they will want to make sure you can afford the mortgage repayments on your own.
You could also consider switching to a new lender, allowing you a totally clean slate. Some borrowers prefer this option since your new lender will be assessing you in a fresh light, rather than with the view that you used to hold a joint mortgage.
Your new lender will pay the money released to your original mortgage provider, effectively paying off your old mortgage and continuing the new loan on the agreed terms.
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Standard Refi Vs Cash
A standard refinance, or rate-and-term refinance, changes your interest rate, the number of years you have to repay your mortgage or both. The most popular reason to do a standard refinance is to lower your interest rate.
Sometimes, homeowners who are getting a lower rate through a refinance will also move from a 30-year mortgage to a 15- or 20-year mortgage. This way, they dont start all over on paying off their home, and they may even shave off years of payments. That means theyll spend less money on interest in the long run. You can get a shorter term with either type of refi.
Other times, homeowners are motivated to refinance by financial constraints. A standard refi that restarts the 30-year payment clock can give you a lower monthly payment, especially if youre getting a lower interest rate. A cash-out refi will usually increase your monthly payment because you owe more overall on the mortgage.
Overview: Tax Implications And Mortgages
You accept a loan with a higher principal and take out the difference in cash when you take a cash-out refinance. The IRS views refinances a bit differently compared to when you take out your first mortgage. In other words, the IRS sees refinances as a type of debt restructuring. This means that the deductions and credits you can claim with a refinance are less robust than when you originally took out your loan.
The new Tax Cuts and Jobs Act of 2017 increased the standard deduction for both single and married filers but also cut many of the deductions homeowners could previously count on.
Under the new tax law, your insurance payments arent considered tax deductible. Some new rules also apply to refinances in particular. For example, you cannot deduct the total cost of any discount points you pay at closing the year you get your new loan. However, you may deduct them over the course of your new loan.
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Just How Common Are Market Downturns
There’s no doubt about it: Market downturns are intimidating. Whether you’ve just started investing or have been buying stocks for decades, few people are truly comfortable with watching their investments plummet in value.
That said, downturns happen regularly and are not as daunting as they may seem. Since 1928, the S& P 500 has experienced 21 separate instances where stock prices fell by more than 20%, according to data from consulting firm Yardeni Research. That’s one relatively severe downturn approximately every 4.5 years.
The good news is that regardless of how severe those crashes were, the S& P 500 has recovered from every single one of them so far. If the market does experience another dip, there’s a very good chance it will recover once again.
Youll Use Up Contribution Room
And the third reason: When you take moneyfrom your RRSP, putting it back generally uses up your contribution room.Whats contribution room? Each year you can put as much as 18% of yourearned income from the previous year intoyour RRSP, up to an annualmaximum. The difference between your limit and what you actually put inyour RRSP is the unused contribution room. You can carry that forward to useanother year. Unused contribution room plus your annual maximum becomes your totalcontribution room. But whatever you put in your RRSP replacing a temporarywithdrawal or making a brand-new contribution can use up contribution room. Letssay you take $5,000 out of your RRSP this year and plan to pay your RRSP backnext year. That repayment will reduce your contribution room by $5,000.
There are two ways to avoid paying tax on RRSP withdrawals,without using up contribution room:
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Refinance To A Shorter Loan
If you can afford to make higher monthly mortgage payments, consider refinancing to a shorter-term loan. For example, if you currently have a 30-year mortgage, think about switching to a 12-year mortgage so you can pay off your mortgage sooner and build home equity at the same time. However, keep in mind that refinancing your mortgage to a shorter term will increase your monthly payments, so make sure you can afford to cover the added cost every month before refinancing.
How this affects equity in your house: When you refinance to a mortgage loan with a shorter term, less of your payment goes toward paying down the interest. That means more of each monthly payment goes toward paying down your mortgage principal, which increases your equity.
