Thinking about tapping into your home equity? You’re not alone! Many homeowners consider leveraging their home equity for a range of financial needs, from home improvements to funding education or consolidating debt. But there are some common myths around home equity and the financial products used to access home equity that could keep you from making the best financial decisions.
Let’s dive into the seven biggest myths about home equity, so you can make informed choices that support your goals.
Myth #1: Home Equity Is “Free Money”
First things first: Home equity isn’t free money. To access it, you’ll need to use specific financial products, like a NestBucks Home Equity Investment (HEI), HELOC (home equity line of credit), or a home equity loan. Each has its own terms, repayment structures, and interest rates. So, before you jump in, it’s essential to understand what’s involved. Want to know more about how these products work? Check out our guide on home equity products for a detailed breakdown.
Myth #2: Home Equity Only Increases Over Time
Sure, making mortgage payments can build up your equity over time. But that doesn’t mean home equity will always go up. The actual value of your equity depends heavily on the housing market. If home prices dip, your equity could shrink—even if you’ve been paying down your mortgage. To understand how home equity can fluctuate, have a look at this article.
Myth #3: Accessing Home Equity Products Will Affect My Primary Mortgage
Worried about touching your primary mortgage? There’s no need to! When you use home equity products—whether a Home Equity Investment (HEI), HELOC, or home equity loan, —they don’t impact your primary mortgage’s terms. That means you’ll still keep any favorable rates and conditions you currently have on your primary mortgage and your monthly payment on your primary mortgage won’t change. If you want to dig deeper into how home equity products work alongside your mortgage, check out NestBucks’ guide to home equity products.
Myth #4: All Home Equity Products Are the Same
A Home Equity Investment (HEI), HELOC, and a home equity loan, may all help you access funds, but they’re far from identical. A HELOC, for example, acts like a revolving credit line with variable interest, while a home equity loan functions as a second mortgage with fixed payments. Home equity investments, meanwhile, give you cash access without monthly payments but involve shared appreciation or equity in your property. Your choice should depend on your unique financial goals and current situation.
To better understand the differences, check out Investopedia’s guide to home equity.
Myth #5: Home Equity Products Have No Collateral
Home equity products do use your home as collateral, so it’s essential to understand the implications. For home equity investments, while you won’t have monthly payments, you must still take care of the property and stay current on taxes and your primary mortgage. For HELOCs and home equity loans, monthly payments are a must. Knowing these requirements can help you avoid issues down the line.
Myth #6: Interest Rate Changes Won’t Affect My Home Equity
If your mortgage or home equity product is fixed-rate, then yes, rate changes won’t impact your payments. But if you’re dealing with a variable rate on a mortgage, HELOC, or home equity loan, then interest fluctuations can directly affect your monthly payments. Home Equity Investments (HEI), however, remain unaffected by interest rates because the repayment amount depends on your home’s value at the start and end of the contract.
Want to learn more about fixed vs. variable rate products? Explore Nestbucks’ insights on HELOC and loan types.
Myth #7: Home Equity Payments Are Always Tax Deductible
Not all home equity payments qualify for tax deductions. Home Equity Investment (HEI), for example, don’t involve monthly payments, so deductions don’t apply. For HELOCs and home equity loans, tax deductions might be possible, but it’s best to consult a tax advisor to know your specific situation.
Bottom Line: Make Informed Choices About Your Home Equity
Home equity is a powerful tool, but understanding the facts—and avoiding these myths—can help you make smart financial choices. Ready to explore your options? Apply with Nestbucks for advice on selecting the right home equity product for you.
