Equity is simply the value of a property after all debts have been deducted. If your home appraises at $300,000 with a home loan of $150,000, you have $150,000 in equity. Whether you realize it or not, this equity can get you through hard times or provide you with a funding resource. Let's look at some examples.
If you get though your life without any financial emergencies, you are considered a lucky person on the earth. Unfortunately this luck does not follow most of the people on earth. We can't foresee any emergencies which may happen in the future. If you don't build your wealth at the current time which you can control and plan, you be dragged into a deep debt problem and face a serious finance crisis if any unforeseen emergency pop up which suddenly need a huge amount of money to resolve the problem.
Example of common emergency is serious medical treatment in major illnesses and serious accidents are required huge amount on medical bills. If you ever run into this situation, you will be extremely thankful if you have purchased a home. With a home equity, you can get a home equity loan easily or get a home equity credit line to cash out the needed money.
Loss of Income
Sudden loss of income may lead your to trap into debt. Your credit card debts and other high interest rate debts will start to accumulate if you miss your monthly payment due to loss of income. If your have ever build your wealth with home equity, now it will become your financial crisis saver to minimize the negative impact. With your home equity, you could easily do a debt consolidation with home equity loan. Home equity loan is carries much lower interest rate and have a flexible repayment term for you to choose from. By consolidate your debts into one home equity loan. You monthly repayment will be much lower as compare to your other high interest rate debts. Thus, it reduces your financial burden and buys you some time while you are sourcing for new income.
College tuition is not cheap these days and the education expenses on your children may be very costly and can be a nightmare for parents. Home equity can put an end to college tuition nightmares. You can borrow the money against your home equity to pay for your children's college expenses.
Home equity is built over time. As equity builds, you create a pool of money to access in trying times. Growing equity is a great way to pursue wealth building and it can provide a financial cushion when life gets hard.