2 Responsible Ways to Tap into Your Home Equity
If you are strapped for cash, you might be able to get some quick financing by tapping into your home's equity. Basically, a home equity loan offers lower interest rates than credit card debt or other loans because it uses your home as collateral. However, it is best to use the debt to improve your financial position or invest in assets with lasting value. Using a home equity loan to finance a vacation, shopping sprees, or impulse purchases may put your home at risk. Here is a look at ways to use a home equity loan responsibly.
If you are planning on making expensive home improvements such as remodeling your kitchen or expanding your master bathroom, you can benefit from a home equity loan. This will allow you to draw on your home equity and reinvest it in your home, improving the quality of life for you and your family without having to pay sky-high interest rates that normally accompany credit card debt. Just be sure that you will be able to pay off the loan from your income to avoid putting your home at risk.
If you are planning on selling your home soon, taking up a home loan to make some upgrades could also be worthwhile, as you will increase the resale value of your home and ensure that you fetch a higher price for it. The extra cash you make on the sale could be used to pay off the loan entirely.
Paying off debt
If you have multiple bills that you are unable to pay, you could consider consolidating all the balances into a single home equity loan as a way of lowering your borrowing costs. However, drawing equity on your home to cover routine bills could leave you worse off if you keep on piling up more credit card debt.
The best strategy is to only take the loan as a way of clearing outstanding balances incurred due to a financial setback you will soon recover from, such as unemployment or illness. Once you take up the loan, you should have an improved financial situation to help you make your equity line payments in time and cover your bills so as to avoid running balances back up again. Without discipline to cover your bills and loan repayments, you will likely end up worse off than before.
Home equity loans can be a lifeline to get you out of serious debt or even fix up your home for your enjoyment or a future sale. However, be sure to use the loan responsibly so as to avoid putting your home at risk. Work with a lender like Union State Bank for more information about home equity loans.