Our houses are more than special structures for bringing up children and accommodating families. In addition to providing protection and security for residents, it can serve several other purposes. Homes can be an asset that can be passed on to heirs and loved ones. It can also act as an investment that can be sold in the future, or as collateral for a variety of loans.
Home equity, in particular, uses equity – the value of your home minus the mortgage – to provide you with the funds you need to meet certain expenses. You have access to cash pretty quickly and easily. Also, it offers fixed monthly payments and lower interest rates compared to other types of loans.
Use of home equity loans
Home equity loans can be used for a variety of purposes that range from personal, leisure, and business activities such as the following:
- Home renovation projects
Home renovation projects like renovating the kitchen or adding additional rooms and furnishings require a significant amount of money. Home equity loans can finance home renovations while adding value to your home. Getting a loan can be a pretty smart move, especially if you are considering selling your home in the future, as the renovations can add both appeal and additional value to your property. If you do renovations and additions, you may even be eligible for deductible mortgage interest.
- Financing a student loan for yourself or your child
Sending yourself or your child to college can cost a lot of money as it comes down to paying for tuition, books, housing, and more. Home equity loans can cover these costs and give you the peace of mind of quality education for your child or yourself.
- Pay off or consolidate debts
Debt is inevitable, and having too many can become a burden over time. Debt consolidation is an inexpensive solution to these financial problems by combining multiple payments into a single monthly installment. Home equity used for this purpose allows you to meet your obligations while saving interest. In addition, the money you get by paying a single interest rate can be used to pay the mortgage on your home.
- Funding life events and major purchases
Holidays or weddings are often associated with large amounts. Home equity loans can be processed and approved in a matter of days to fund your travel plans and even make your dream wedding come true. Home equity loans also offer cash for major purchases like a new car or a needed replacement for a home appliance.
- Start a business or make a new investment
Using home equity to fund a business or attract a new investment can be a risky move. This often requires careful consideration and the assistance of a financial advisor, as you may lose more than your home if your business or investment fails.
- Pay medical bills
Medical expenses and emergencies require immediate funding, especially when it comes to life and death. Empower Federal Credit Union is offering a flat rate home equity loan to meet the urgency of the situation.
- Establishment of an emergency fund
Financial experts recommend having an emergency fund equivalent to six months of income to cover unexpected expenses such as job loss, car repairs, or household appliance replacement. Home equity loans are the best opportunity to open your emergency fund and give you access to available cash in an emergency.
To borrow or not to borrow
A home equity loan can be a great way to get quick cash for a variety of needs. It processes pretty quickly and has a fixed monthly payment scheme that gives you the confidence to pay your loan off quickly.
However, taking out a home equity loan requires significant consideration as borrowing equity leaves your treasured home vulnerable to seizure in the event you default on your payments. You need to weigh your options and make sure that your concerns justify the need for a loan.
When choosing a home equity loan, you need to make sure that you are using the amount allotted for worthwhile purposes. As can be seen from the list above, some reasons to take out a home equity loan are prudent, while some may require further evaluation given the risk of putting your home as collateral.
Ultimately, weighing the pros and cons of taking out a home equity loan can lead to an informed decision to ensure that your home not only provides the leverage it needs, but also protects the roof over your head.