One of the biggest benefits of being a homeowner is that you’ll have access to equity. This is the total portion of the property you own at any given time. Your home’s equity grows every time you make payments to your mortgage or if the market value of the property increases while it’s in your care.
You might not realize that every time you’re making payments toward your home, you’re building your equity in the process. This means that the more payments you make, the bigger your equity grows. And this equity just so happens to be accessible through a home equity loan or line of credit (HELOC). Here are four ways you can use a home equity loan:
Most homeowners renovate their houses for one of two reasons: they either want to upgrade an existing fixture or broke something that needs replacing anyway. When this happens, it can be a good idea to undergo home renovation or improve upon the current situation.
However, despite many practical and inexpensive ways to improve the home, it will undeniably still cost money. That’s why homeowners sometimes forego the thought altogether. But if you can take a home equity loan from your house, you can use the money to renovate the property and further increase that value over time.
You’ll have the chance to do anything, from a kitchen remodel to installing sidings to your house. Or if you don’t want sidings, you can also apply a new coat of silicone render to reinforce the durability of your exterior paint job. Doing so can make the exterior finish last longer and become stronger against the natural elements while making your house look good as new.
If you’re planning to start a business or expand an existing one, you can get a home equity loan and use the money as your capital. This can be an easy way to save on high-interest rates that you might have to pay for if you were to apply for a conventional business loan. Plus, this will be a good option if you don’t need a substantial amount since there’s a limit to how much you can borrow.
However, you have to make sure that you’ll be able to repay your monthly dues once you take the home equity loan because it’s a second mortgage on your house. This means that you’ll be putting down your home as collateral for the loan. So, if you default on your payments, you might lose your house along with it. That’s why you have to be careful when considering this option.
Having a lot of debt in different financial institutions can be a pain, so many turn to debt consolidation. This option allows them to consolidate all their debt into one payment institution instead of different ones. Additionally, it allows them to pay off high-interest debts at a much lower interest rate.
But you have to keep in mind that your house will be on the line if you don’t get to repay your monthly dues. Consolidating your debt might only be a good idea if you believe that you can meet your loan repayments because otherwise, you might lose your home in the process.
Life can change in a blink of an eye. One moment, you could be laughing hysterically with your family at the dining table. Still, the next moment, you find out that a relative of yours got into an accident and is in dire need of some financial assistance to cover the costs of their injury. And most people just aren’t prepared for that kind of turn of events.
That’s why it’s important to have an emergency fund that covers at least three to six months of your living expenses. This way, if you lose your primary source of income or get into a medical emergency, you won’t have to worry about where to get money and how to put food on the table. But that in itself is a challenge for most earning adults.
So, if you’re in dire need of money for emergencies, you can apply for a home equity loan to cover the costs of your medical and living expenses temporarily. But you have to remember that doing so will make your home collateral, which is why you have to ensure that you can repay the loan within the deadline.
You could live your whole life not touching your home’s equity, but it could be a waste of potential. Of course, if you’re passing down your house onto the next generation, they could still use the equity, but it’s good to know that you have access to money should you ever need it for personal reasons.