A home equity loan can be used for just about any purpose you can think of. While you can use it any way that you want, there are some ways that make more financial sense than others. What are some of the smarter ways to use a home equity line of credit?
Renovations of Your Home
This is the wisest use of a home equity loan, simply because it can add value to your home and increase your home equity. If it is used for value adding projects, such as renovating a kitchen or bathroom, or adding on a room or siding, it can really increase the amount of money your home is worth. A Realtor will be able to tell you if it is a project that will increase the value. This is especially essential if you are looking to sell your home in the near future.
Pay for College
College can be quite costly and if your son or daughter is going to college, one way to pay for it is by using a home equity loan. This can give you a low interest way for you to pay for college and it will take some of the stress out of waiting for grants or other funding approval.
To Use for Investing
Investing with money from the equity of your home could be a good idea if you know something of the stock market or other high yield investments. It is important to be careful, as you want to be sure that you will make enough profit to make the loan worth it. It is a risk to invest, so make sure that when you invest you let a professional take care of your money. Investing small amounts and then building up can be a good idea.
Paying Off Debt
A home equity loan can help you in paying off your debt as well. It can give you the money to quickly pay off your debts and roll them into a single payment. You will also stretch out the payments over a longer period of time, which lowers the payments. Remember that you want to not look at this as a new opportunity to max out your credit cards again. This is a fresh start, but not to simply get in debt again.
To Take a Vacation or Have Fun
While you can get a home equity loan to go on vacation or to have some fun, this should not be your main reason for taking out a loan. Building home equity can take a long time, so you want to be sure that you use it wisely and in a way that makes financial sense.
Before deciding on a home equity loan, take the time to shop around with different lenders until you find the right deal for you. This will allow you to see what is available and compare them with each other. Be sure you leave at least 20% of your home’s value untouched or you will have to pay private mortgage insurance, which will add another fee. A home equity loan can be a good idea, but it is important to carefully think it out to make sure it is a right choice for you.