How Home Equity Financing Works

Sun 15th Sep, 2013

‘Letting your home work for you’. How can the value of your home work for you? The answer? By using the ‘equity’ you have acquired over the years, to finance other expenses such as education, debt consolidation, investment, medical expenses and even vacations. Let us explain ‘equity’.

Utilising the equity in your home

Let’s say our homeowner, John, purchased a property valued $500,000. John is required to inject a minimum of 10% as a deposit/down payment ($50,000) while TTMF would have given him a mortgage loan for the difference ($450,000). John’s equity ($50,000) in the property would therefore be the difference between the value of the property and the loan amount ($500,000 – $450,000).

Fast forward a few years and the balance owing on John’s mortgage loan is now $300,000. John has faithfully serviced his mortgage by making his payments on time every time. He has effected repairs and maintenance to the property as needed and the value of his property has appreciated over the years.

A Financial Dilemma

John’s son has been awarded a partial scholarship to pursue a Masters Degree offered by a University in England and John must raise TT$250,000 to cover his son’s living expenses and the cost of books. John does not have ready access to $250,000.00. What should he do? Should he deny his son this opportunity for lack of funds? We say no.

Accessing funds for School

John can obtain a home equity mortgage from TTMF to fund his son’s education. By maintaining his property and servicing his mortgage, John has ensured his initial investment of $50,000 has increased. The value of John’s property is now $800,000 as advised by his recent valuation of the property, and by using the formula (value – current mortgage balance) John now has $500,000 represented by the equity in his property. He can use this equity to apply for a loan to fund his son’s education. John can also consolidate his smaller consumer loans thereby ensuring his only monthly commitment, his mortgage payment, is manageable.

Eligibility for Home Equity Financing

Equity financing makes it possible for homeowners to finance the ventures that are important to them and their families. In order to ensure you build equity however, you must remember the following:-

  • Pay your mortgage on time every month (this ensures the progressive reduction of the debt)
  • Ensure that your property is well maintained – effect repairs as and when necessary (a lack of maintenance and repairs can actually devalue your property)

Our commitment is to always work with our customer through their life’s stages/changes, to ensure that their financial needs are met by ‘letting the equity in your home work for you.’

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