Having equity in your home is a good thing. It means that you owe less on your home than what it is worth. It also means that you potentially have the ability to turn that equity into cash you can use without selling your home.
What is a Home Equity Loan?
A financial institution can provide you with a loan based on how much equity you have in your home. You receive it in a lump sum and pay it off over time with a standard loan repayment plan. Your home is used as the collateral on this loan.
But does it ever make sense to spend your home equity? It depends on your own personal financial situation and needs. Here are six reasons you might want to use your home equity.
To Pay for Home Improvements
Home improvements can range from necessary repairs to strictly aesthetic changes. Home equity can be an option for financing any type of home improvement. Whether you need a new roof or siding, a pool in the backyard, upgraded energy-efficient appliances or a luxury bathroom remodel, getting a home equity loan could be an option for paying for these projects. And with many home improvement projects, you could end up increasing the overall value of your home, giving you even more equity.
Paying college tuition bills can add up. Not to mention the cost of living expenses. In some situations, it could make sense to consider a home equity loan instead of, or along with, a typical student loan. It never hurts to have multiple options for financing an education.
In Case of Emergency
Emergencies are unpredictable and can happen to anyone. Having equity in your home can provide peace of mind knowing that you have a backup plan for unexpected expenses. The process for securing a home equity loan can be relatively fast so that you are able to quickly respond to any emergency needs.
Retiring requires smart financial planning and spending. Having more than one source of income can help retirees enjoy this time of their life to the fullest. Many people at retirement age are living in homes in which they have a large amount of equity. This equity can be used to pay for living expenses throughout retirement instead of being tied up in the house.
Pay Off Other Bills
It can seem counterintuitive to get a loan in order to pay off other loans or bills, but sometimes it really does make sense. Consider the fact that a home equity loan has the potential to come in at a much lower interest rate than many standard credit card or personal loan interest rates. So it could make perfect sense to secure a home equity loan, pay off other debt, and then pay back the home equity loan at a lower interest rate.
Equity can be taken out of your home and used for purposes like investing in the stock market or investing in starting a new business. Use caution when considering home equity for this type of purpose. Investing in the stock market carries risk. Be sure not to overextend so you are able to pay the loan back on time.