Remortgages And Better Use Of Your Home Equity

By on June 4, 2017

There is a fancy trend these days about exploiting fast remortgages to make the most of your home equity.

Huge returns come with buying a house. In fact, a lot of people are considered millionaires just because they own a house that is worth that much.

However, if you are new to playing the game of home purchases and minding your mortgage, you have to be more than careful about how you allocate and use your available funds.

A lot of advice concerning wealth accumulation are only meant for seasoned savvy market players. You can be making a costly mistake in how you dispose of your money by following blindly to the words of someone who had never put his own money on a house.

A most common mistake when putting money on your house is in transferring all of your cash into equity on your house. Meaning to make a big down payment, or to take on as little financing as possible.

The most common people you get loan advice from are from those that works for the banks, financial institution, and property agents. They may seem like people you can trust to put you interest first.

But you have to be real. They are just doing a job to get by and to have a proper report card to report to their immediate managers. These potentially life changing decisions on your mortgages primarily concerns you.

When it comes to loans, the lenders set the rules. They decide what is good for you when they barely know you. They convince you of financial strategies when all you want is a good deal with the best interest rates.

Most of the time, their recommended strategies are conceptualized to boost their own bottom lines. Not yours.

But you cannot blame them. They are running a business anyway. And they sell a product that you need to go on with your life. They chose how loans are structured and made available to you.

And because most people are not savvy home buyers, everyone goes along with what is available.

After all bankers are well groomed. They get paid well to sell a specialized product. They are young, dynamic and hold a bachelor’s degree with double honors. They sound like they know exactly what they are talking about.

How can anyone except a more experienced mortgage banker question their advice?

The biggest concept sold to us was that a mortgage loan has only one purpose. It is to help a home buyer to purchase the house, and obediently pay what the lender determines as a fair interest rate for as long as 15 to 30 years.

Instead of advising on strategies for wealth creation, banks have done a great job in convincing future home buyers to spend their hard-earned income on them for a huge part of their lives in the form of high repayments.

It is to the business benefit to the bank for you to pay off your liability according to the recommended repayment schedule. And you religiously follow that so that you will not have to make any more payments when you age.

It is as if making enough money just to service a mortgage is part of the hardship in life and we should submit to it.

Leverage

You should put that thinking aside.

Doing that will put you in a situation where you will have little disposable cash. Cash that you can use to create your wealth.

When you have more cash on hand, you can use them for other forms of investment.

It could be in the form of shares, setting up a business, or even an insurance policy.

The more disposable cash you have, the more opportunities you have to leverage them into generating more cash for you to accumulate.

Whereas If you have little disposable cash, you will not be able to take advantage of opportunities that are staring at you.

With all the available money making vehicles available, it really makes little sense to put all your money into paying for your home when you can actually chose not to.

Money paid for a mortgage is as good as gone as they are not available for you to put them to better use that can generate returns.

Home equity

The thing that people should learn about is that money paid to their mortgages can be taken out as equity, and that money can be put on other vehicles that can yield a better return than to leave it with the bank.

What do you think your bank is using that money for anyway? They are using them to make interest for themselves!

So if you see your house as more than just a place for you to do your laundry, you can mind your own mortgage by getting advice from a real remortgage specialist whom you can learn how to make the best of your cash in the house itself.

Your house is after all probably the biggest financial commitment that you will commit to.

Let’s take a simplified example.

You bought a house 4 years ago at $300,000 with a $210,000 loan. Now the value of the house is worth $500,000 because of appreciation. If you are to leave your mortgage at that, you are effectively letting the difference of $200,000 idle in paper value. This is when the idea of a fast remortgage will do wonders for you. You can go to another lender to obtain a home equity refinance at the current valuation of $500,000. That means that you can pay off whatever is left of the original $210,000 and obtain the balance for other forms of financial gains. If you get 70% offers on your house, that comes to $350,000. So you are left with $140,000 cash to put in other vehicles.

Do note that this is a simplified example to help you better understand the concept of the benefits of a cash out equity loan.

Current interest rates and the rates that you are paying will play an important factor. Current financing deals can also make a material impact to determine your decision.

You should always look out for opportunities to maximize the use of locked-up cash on your home. It’s the responsible thing to do as an able, income generating adult.

So next time before you consider buying a house, find out what your options are.

Learn about the loan structure that you will likely take up. Draw out the repayment schedule until a likely period that you will want to repeat the process. Usually the lender will have a lock-in period that will impose a hefty penalty if you redeem your loan within a specified period.

By refinancing your home, you can take out cash from the home equity.

Why should you get a remortgage on your house?

Properties have proven to be a good hedge against inflation because of it’s appreciation. Money can have less value in 5 years if you leave it alone.

However properties have a tendency to appreciate with inflation and very often exceeds it.

Considering that you can leverage the cash locked-up in your home equity on other vehicles to make good returns, it makes good sense to remortgage your home after a few years.

Most mortgages are structured in a way that there are fixed interest rates on the first few initial years, and “float” after that to move with the market indexes. This means that the interest rates you pay for your existing loan when it floats can be pretty uncertain. It can go up or down.

How are you going to plan for anything if you do not know what are you going to pay every other month?

With a refinancing, you can take up a package that will revert you to interest rates that can be fixed rates for another few years, which after that you can decide whether to review your financial commitment on the house.



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