What Equity Is
Some people are not sure what equity is, moreover how to create wealth from equity. Firstly, equity is what you have left for yourself after all your debts have been paid off. The percentage of the house that you “own”, and is a representation of how much money has been paid against the total amount owed. Equity basically comes from three sources:
- Tangible assets such as a house, shares, collectables.
- Future wealth such as Superannuation, annuities.
- Potential equity from inheritance.
It is this equity that is the key to wealth creation.
How Home Equity Loans Work
When you take out a home loan, the bank takes a mortgage over your property and until that mortgage is paid out you do not own you home. But you loan amount generally is fixed but the value of your home grows and the value of property goes up. Even a line of credit has a maximum amount and you will still have an amount of wealth which you can use now to create wealth from equity. If you wait until you retire, you may be sitting on a valuable asset which only your relatives will enjoy when you die.
There are some options such as reverse mortgages but these are limited and only release equity, not grow equity. Even this may not be enough as we live longer. Do you want a quality of life in the future or spend your life looking at the economy hoping you can hold out till it comes good again?
Your property or shares rise and in time, the value of your debt reduces and what is left over is usually the net worth or equity. This is the part you can use to purchase additional investments to create wealth from equity, but only if you start to look to the future.
Slightly different from a home equity loan is the home equity line of credit. The credit lines function similar to those credit cards issued in banks – and you need to be just as careful with an equity loan as you do with a credit card! However unlike a standard loan, you can access the free equity anytime you like and there is some flexibility about how quickly you repay the amount you borrowed.
A home equity line of credit, is often used in situations where there will be multiple purchases or payments, for example during a major renovation or for home improvements. Using these loads are very useful ways for creating wealth.
What Are Your Options To Create Wealth From Equity?
You can continue as you are now and hope that when you retire you have enough to live on. Even the present state of the market it does not look good.
Or you can start planning now so that when you retire you have more than just a pension.
Did you know that you can use the equity in your home to help you or your children to purchase property or shares? I have and my children have increased their equity by simply purchasing an investment property using equity from my property. While they are working and developing a occupation and growing their income the property grows in value giving them equity to use in the future when they are ready to purchase their own property. Also the property may be cash positive and pay for itself.
Would it be nice to just sit back and watch an investment grow knowing that in the future you can use that value.
I can show you how to create wealth from equity so you can be better off in the future. If you are looking for home loan finance, I can help you here
Firstly, equity is just what you’ve remaining for yourself after all your loans have been repaid. The proportion of the home which you “own”, and it is a reflection of the amount of money payed off against the entire balance due. Equity essentially is produced by 3 sources (it not just a home):