The difference between the financially comfortable and the wealthy usually comes down to one thing: willingness to leverage assets to create more value.
If you let your money just sit in a bank account you won’t lose anything, but you won’t gain anything either. A long-term low-risk investment portfolio is a great way to ensure you have a nest egg ready when you retire, but it won’t fundamentally transform your economic horizons.
The good news is that if you’re a homeowner, you are living in the biggest asset you’ll probably ever possess, and you can use it to improve your financial situation, invest in your future, and grow your wealth. Here’s how.
1. Consolidate Debt
One of the main things holding most people back from their full financial potential is debt. Americans and Canadians take on debt as an investment when they buy a house, go to university, or open a business, but they also take on large amounts of “bad” unproductive consumer debt to maintain their lifestyles.
If you’re unable to build up wealth because you’re barely keeping up with your monthly credit card bills and car payments, consolidating your debt using a home equity loan is a good first step toward having the maneuverability to start putting your money to work.
2. Take Out a Second Mortgage
Most Canadians purchase their home using a mortgage. On average, these mortgages are amortized over a set period of twenty years or more, but you don’t actually need to wait until your mortgage is paid off to be able to leverage it. By making your monthly payments, you slowly build up equity in the property, and you can borrow against this equity by getting a second mortgage.
This money can be used for a range of purposes, including concrete investments in the property itself that can help you generate more revenue from it — refinishing a basement unit, for example, so you can gain a passive income through renting.
The best way to get a private 2nd mortgage is through a mortgage broker who can present you with a variety of borrowing options so you can quickly find the most attractive rate.
3. Free Up Equity by Refinancing
Finding ways to reduce your monthly mortgage payments is a great way to free up capital for other ventures, and given the current interest rates, refinancing your mortgage may be the best way to do so without increasing the overall amount of interest you’ll need to pay.
Refinancing through a mortgage broker will help you get the best rate and can also allow you to secure a lump-sum cash payment that you can use to improve the property or open a business. Either way, you’ll be using the equity you have to make more money down the road.
When you don’t leverage your assets intelligently, you can’t expect to make much of a return. Not everyone can afford to make reckless bets on the stock market, though, and it is generally a good idea to leverage your existing assets in a prudent way that is sure to earn a return.
If you want to know how best to use your home equity to grow your wealth, get in touch with a residential mortgage broker to find out more.