Tapping your Home’s Equity to Invest in Your Business

More and more women are branching out on their own and establishing successful businesses.  It’s not as hard as it may seem, especially if there’s financing behind your vision.  Thanks to the value of your own house, you can get seed money for your venture right in your own backyard. 

Home Loan Mortgage Refinancing

One option to tap into funds is to refinance your current mortgage, especially if refinancing rates are lower than those of your original mortgage. If your house has appreciated over your original purchase price, or you’ve paid down a nice chunk of principal, you could do a cash-out refinancing and have access to cash above and beyond your current mortgage balance. On the flip side, refinancing usually involves closing costs. If your existing loan has a great rate, it may be best to keep it and consider adding a second mortgage loan instead. By refinancing, however, you’ll have only one monthly mortgage payment, and that could simplify your finances.

Home Equity Loans

If tacking on the extra closing costs of a mortgage refinancing makes you shudder, consider a home equity loan. Similar to a first mortgage, a home equity loan gives you a lump sum of cash up front, which is then amortized and repaid over 10 to 30 years.

The interest rate is fixed, and your payments are predictable.  Retail entrepreneurs can cover the huge upfront expenses of purchasing inventory; others can gain capital needed for starting up. The long, multi-year payback term enables you to repay the debt as business blossoms.

Home Equity Line of Credit

If you need cash, but don’t know exactly how much, and prefer to have it on a revolving as-needed basis, a home equity line of credit (HELOC) may be just what your inner entrepreneur ordered. It acts more like a credit card with a large limit rather than a traditional mortgage loan.  Instead of a single payout, you get access to a line of credit secured by your home.  During the first 5 to ten years, you can withdraw money from the credit line as needed, and pay only interest. After 10 years, the balance reverts to a more traditional mortgage instrument.

Tax Advantages

All of the above loans may enable you to deduct some of the interest payments from your taxes, even though you aren't using the funds to improve your home.  Speak to a financial professional to determine how these types of loans will affect your taxes.

Whether you need predictability or flexibility, tapping into your home equity can be simple and lucrative. Like charity, start-up money can begin at home.

By MortgageLoan.com Staff Editor