FOR many homeowners, their properties are more than just roofs over their heads — they are valuable assets waiting to be tapped. Yet some may be unaware of the financial opportunities that arise when their home builds up sufficient equity and how they can leverage it to transform their financial situation.

“One of the quickest ways to build wealth is to use that equity to buy more assets,” said Keisha Bailey, CEO of Profit Jumpstarter, in an interview with the Jamaica Observer. “Most people buy a house, and they’re just very happy to own the house, and they never do anything with the house.”

Home equity is the amount of your house that you own outright — or, simply put, the difference between your outstanding mortgage and your home’s total value.

“If you have a mortgage on the home and the current balance is $20 million, then when you do a valuation report the value is $40 million. You have an equity of $20 million. So the higher, the more the value increases and the lower your debts against it, the more the equity builds,” defined Sandra Lynn, sales manager of the mortgage unit at National Commercial Bank (NCB), while speaking with Business Observer.

There are a few ways that a person can use equity in their home to build wealth, and the number one would be borrowing the equity, taking a loan using that equity in your house, and leveraging the equity.

“Other people money is the best money,” Bailey stated as her mantra.

Using your home equity for a loan can be a cost-effective way to fund various needs, thanks to the lower interest rates compared to unsecured loans. When you borrow against your home equity, the property serves as collateral, which allows lenders to offer rates typically between 9 per cent and 10 per cent, much lower than the 20 per cent to 30 per cent you might face with unsecured loans. This is because the home acts as security, giving lenders more confidence. Bailey warns against high-interest loans, as it’s tough to find investments that outpace such steep rates. Another benefit of home equity loans is longer repayment terms, usually between 15 and 25 years, which makes monthly payments more manageable. This flexibility can be used for a home deposit, purchasing property abroad, or even consolidating debt.

“We have seen people take it, and they free up their income so much, by even 50 per cent or more sometimes. If they say they have a monthly payment and they’re paying back $150,000 per month, right, you know, consolidating all those debts over a longer term with a more competitive or a better interest rate, so to speak,” Lynn said.

Bailey has also personally benefited from using the equity in her home to make investments in other properties and invest it at a rate higher than the loan rate, which she says is how she has been able to build wealth in a fast and efficient way.

“What I do is take a home equity loan and buy a car because the monthly payments are so low,” she divulged to Business Observer.

While both Lynn and Bailey strongly agree on using home equity to secure a deposit for another property, Lynn outlined other situations in which borrowing against home equity may be justified, such as for home improvement projects, which may increase the overall value of your property.

“I personally would not advise somebody to take the equity to go and travel or to buy Gucci or any fashion stuff,” Lyn advised. “Use it for something that can help you; I always say let your investment work for you, and your home is one of the greatest investments that one can have.”

Lynn highlights a strategy she often recommends for using home equity: funding a child’s overseas education. She suggests that if you can comfortably manage the repayment, taking out a home equity loan can be a smart way to cover tuition fees for studies in countries like Canada or the US. Her advice is to use the equity — whether it’s $5 million or more — to purchase foreign currency, such as Canadian or US dollars, and place it in a fixed deposit account. Each year, you can draw from this account to pay for your child’s tuition. This approach, Lyn explains, helps protect against rising exchange rates, which could increase the cost of tuition if you wait to purchase the currency year by year.

“You can get up to $5 million without showing proof of what you need it for, and it is paid directly to you in your account. So you can use it to invest, to lock it up, to do whatever you want to do with it,” Lynn said as she broke down NCB’s home equity structure to Business Observer.

For loans over $5 million, proof of intended use is required, and funds are paid directly to the recipient. Additionally, borrowers can access up to 90 per cent of a home’s value if it’s worth $40 million or less, but the percentage decreases for higher-value homes, dropping to 55 per cent for properties over $100 million. NCB’s home equity loans typically have interest rates between 10.5 per cent and 11.05 per cent, with shorter repayment terms of 15 to 25 years, compared to regular mortgages that can extend up to 40 years.

Financial educator Keisha Bailey advises that while borrowing against home equity can be a useful financial tool, it must be done responsibly. She acknowledges that fears of losing one’s home are common, but these risks are often tied to financial discipline and a lack of understanding of how home equity loans work.

“That’s usually their own money mindset issue because they probably owed money in their lifetime,” she surmised.

Her advice as a financial mentor is to remain informed and take manageable loan amounts when using home equity as collateral.