Home equity loans working for you

Equity is the difference between the value of the home and the sum that the owner still owes on it. Homeowners have been quick to take advantage of additional equity in their homes. With real estate values reaching record levels over the last five years, a lot of Americans are discovering themselves to be "property rich." With explosive price increases in some markets, such as Florida, many owners have abruptly realized that they have tens or even hundreds of thousands of dollars worth of equity in their residence.

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Like the value of stock, the worth of a home's equity only exists on paper. With no selling or borrowing, the increase in value that equity represents is merely a number, and a somewhat meaningless one, at that. So that you might turn equity in a home into real money, you must sell the home or make use of it by other means.

Following are a few ways that you can turn that number into real, useful cash:

• Move to a cheaper or smaller home - Smaller houses need less upkeep and have more affordable taxes due to the reduced value. The equity is not taxable when you do this, provided that it is less than $250,000 and you have lived in the home for more than two years. You can sell your existing property, move to a less expensive home and pocket the leftover funds. In most cities, moving to a cheaper house necessarily means moving to a smaller house, but for retirees or individuals who are near retirement, this might be an ideal choice.
• A Reverse Mortgage - The financial institution is repaid when you dispose of the house or pass away. A reverse mortgage is ideal for retirees, as you must be 62 or older to meet the requirements. With a reverse mortgage, you are loaned money according to the value of your property and you can take the money in the form of a lump sum or monthly payments. If your property is worth less money than the mortgage amount at the time the house is sold, you may not be have to pay back more than the value of the home.
• Equity borrowing - You can also apply for a credit line, which allows you to continually borrow and repay based on your needs. In areas where housing prices are still appreciating, you can obtain cash to upgrade, add a game room or a bigger garage, and deduct the interest payments from your taxes. This type of funding is not actually "extracting equity", as you are required to repay when you borrow against your property.
• Move to a cheaper neighborhood - If you are prepared to move a long distance, you may be able to get a house of the same or even larger size while still extracting cash from your present property. If you live in Southern California, moving to St. Louis will almost certainly allow you to keep a large house and some cash. Loading up and moving away to pocket cash is not for everyone, but if you are keen on cashing out, it's a fantastic way to do it.

The house belongs to you, and you may use its market value as you wish. All it requires is a small amount of creativity to squeeze the equity out of your property. In today's real estate marketing, there are a few ways to take advantage of the quickly increasing housing values.