As home prices continue to rise, homeowners are sitting on a growing amount of equity in their homes and an increasing source for extra cash. While tapping into that cash to fund an expensive lifestyle might be tempting, using your home’s equity should be done cautiously and with a specific reason in mind. Continue reading for four of the smart ways that you can safely use a home equity loan to improve your financial future.
Home renovations are one of the most frequent uses of home equity loans and are also typically one of the smartest options. Home improvements are a great decision because if done right, they raise your home’s value and make for a great investment. If you decide to use a home equity loan for this, focus on improvements that will increase the home’s value but also will improve its functionality or make it a more enjoyable living space for you.
If you’re planning on selling your home soon, make sure that you are spending on upgrades that shoppers are looking for so you can make back as much of your investment as possible. It’s best to focus on upgrades such as fresh paint, new flooring, or bathroom and kitchen updates, which are features that buyers frequently look for.
Consolidate high-interest debt
Another smart way to use a home equity loan is to consolidate debt. If you are currently making payments on multiple high-interest credit cards or loans, taking out one home equity loan to consolidate these expenses offers numerous benefits. One benefit is that by consolidating your debt into one payment, you have the potential to save thousands of dollars on interest. Consolidating with a home equity loan also gives you the freedom of making just one payment per month, rather than coordinating multiple monthly payments. Lastly, home equity loans have a designated loan term, so you will know exactly when the debt will end, in comparison to revolving credit card debt.
Using a home equity loan to fund an investment property is another smart option if done properly. If you have built enough equity in your home you may be able to use a loan to pay for a downpayment or even for the full cost of an investment property. However, when purchasing a second property, you should have the intent of receiving a return on your investment by either renting or reselling it. While it might be tempting to use a home equity loan to purchase a vacation home for your family, avoid spending it on something that will not offer the opportunity to improve your financial future.
If you are faced with expenses from an emergency situation, tapping into your home’s equity might be the right solution for you. Whether you are faced with a medical emergency or job loss, paying for your expenses with a home equity loan is a smart option, especially if you do not have an emergency savings fund prepared. Even though you will not be using the loan to better your financial future, when life hands you an unexpected situation, taking advantage of your home’s equity can provide you with the necessary funds.
Now that you know the smart ways to use a home equity loan, if it’s the right choice for you, get started with WMFCU. From now until the end of March, WMFCU’s home equity loan promotion is offering rates as low as 4.99% with terms at 10 years. Visit our promotions page or stop by our office to learn more.