Four Ways to Use a Home Equity Line of Credit
Home equity is often a homeowner’s most valuable asset. The difference between your mortgage balance and the appraised value of one’s home offers potential access to funds. A portion of a home’s equity can be used to borrow money as a line of credit or home equity loan providing the homeowner an opportunity to fund home projects, pay down debt or other benefits.
Improve Your Debt Position
Interest rates on home equity loans are typically lower than credit cards and other unsecured loans which allows you to reduce high interest rates and pay down the debt faster. In addition to lowering interest rates, consolidating debt can be a highly effective financial strategy. Consolidating high interest credit cards and other loans simplifies payments while also lowering the interest rate. One thing to be mindful of however, is not to run up debt on credit cards that have just been paid off, ultimately increasing overall debt load.
Enhance Your Home
One of the most popular uses for a home equity line of credit is the repair or renovation of a home. Whether modernizing an outdated kitchen, replacing an old HVAC system or adding a room or outdoor living space, a home’s equity provides opportunities to fund these projects and potentially increase the home’s value. Energy efficient upgrades may even lower monthly energy bills and could provide rebates or tax incentives.
Pay for School
Managing costs for education can be challenging. Whether paying college tuition or ongoing education, it’s a good idea to compare student loan options with a home equity loan. Evaluate interest rates and repayment plans to identify the best strategy for your situation. And better yet, consulting with a financial advisor can provide you with a sound plan action for the future.
Manage Special Circumstances or Unexpected Expenses
If an unexpected expense arises or finances are needed for a special occasion, a home equity line can be a lifesaver. This is where a homeowner should use discretion and consider the future value of the expense versus the home’s equity. Again, a financial advisor may provide good perspective and present options when working through unexpected financial challenges.
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published on 06/06/2021