Ten uses for a home equity mortgage
Home equity can be used to do more than just renovate or fix your home. It can also be used to pay for college and consolidate debt.
The process of home equity loans is simple: You borrow money against your equity in your home. Equity is the difference in the value of your home and the amount you owe on your mortgage. If your home has a market value of $150,000 but you owe $100,000, equity would be $50,000.
A home equity loan can be used in many ways. Remember: A home equity loan is not required if you plan to sell your home within the next few years.
There are many reasons to tap into your home equity
10 uses of a home equity loan
- Student loan funding for you or your child
- Consolidating or paying off credit card debt
- How to fund a vacation
- Weddings and other important celebrations
- Start a business
- Home improvements and upgrades
- Medical bills to be paid
- Make key purchases such as a truck or car
- Investments funded
- Reserve money for an emergency fund
Home equity loans have many advantages
There are many benefits to using a home equity loan.
- Fixed interest rates are used for home equity loans. Your monthly payment is predictable so there will never be any surprises.
- You can make large purchases by paying little at a time.
- A home equity loan’s interest rate is typically lower than that of credit cards or other loans.
- Usually, you can get funds within days or less of completing your loan documents.
- The interest paid on a home equity loan may also be eligible for tax deduction.1 Ask your tax1 advisor.
Three common mistakes in home equity
Many homeowners consider their equity, which they have built up over the years through mortgage payments, to be their most valuable asset. You could use that equity to cover your important expenses. Before you borrow against the equity of your home, whether it be through a cash-out refinance, a home Equity loan or a line of credit (HELOC), you should evaluate whether these plans are worth the risk to your nest egg. There are three reasons you should think twice about borrowing against your home’s value.
Big ticket items
It may seem tempting to use your home equity to purchase a vacation or a car, but this could endanger your investment and leave you with very little return. This type of risk could also indicate that you may be spending beyond your means. Instead, create a long-term savings strategy.
Tapping your home’s value to fund a potentially lucrative-but-volatile investment like stocks or real estate is a risky bet. There are upsides, but you risk losing your equity in your home if the market falls or real estate prices drop.
Start a business
Starting in a garage doesn’t mean risking your garage. You’re better off using your home equity to get a loan for business capital than you are looking for startup capital. You won’t lose you home if your company fails.
You’re ready to go
There are many other situations where a home equity credit line is not only appropriate, but smart.
Improve your home
Tap into your home equity to help you reinvest your property’s value if you are looking for renovation projects.
One rate, one loan. A home equity loan typically has a lower interest rate than credit cards or other loans and a fixed monthly repayment. They can be used to consolidate debt and make one monthly payment, provided you are sure you can pay the loan.
Everybody needs an umbrella at times. Tapping your home equity may be a good option to cover unexpected costs such as medical bills. This is especially true if you have an emergency fund and are able to afford the monthly payments.
The books are the best!
The right education could help you increase your earning potential.
You can do it either way: Take a look at it. It is important to consider how you can leverage the equity in your home. Before making a decision, take the time to investigate all options.