3 smart ways to use your home equity this summer
Summer begins on June 21, marking the end of the traditional school year and the start of vacations, trips to the beach and barbecues. It can also be an excellent time for homeowners to complete delayed home projects, repairs and renovations. The brighter (and longer) days make the summer an optimal time to work on your home.
Fortunately, financing these sorts of projects isn't difficult. In fact, it's easy to borrow from the home equity you've accumulated via a home equity loan or home equity line of credit (HELOC).
These low-interest-rate alternatives have multiple advantages compared to traditional borrowing options like credit cards and personal loans. That said, some uses for home equity are better than others. Below, we'll break down three smart ways to use your home equity this summer. Start by exploring your options here now to see how much you're eligible to borrow.
3 smart ways to use your home equity this summer
Here are three smart ways to use a home equity loan now.
Complete a home repair
Have you been putting off a much-needed home repair? Use the summer to complete the project and utilize your home equity to finance the expense. Homeowners are usually allowed to withdraw 80% to 85% of their accumulated home equity at the time of application. That means you could have tens of thousands (if not hundreds of thousands) of dollars to play with.
But, arguably, the best reason to use your home equity to complete a home repair is the tax deduction. Specifically, if you use it for qualifying purposes, you can deduct the interest you paid on the loan when you file your 2023 taxes.
"Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer's home that secures the loan," says the IRS. "The loan must be secured by the taxpayer's main home or second home (qualified residence), and meet other requirements."
Explore your home equity loan and HELOC options here now to learn more.
Consolidate your debt
The summer provides time to reflect and relax. Accordingly, it could be a great time to review your personal financial situation. If you have debt - particularly debt with high interest rates - it may be smart to consolidate it with a home equity loan.
Interest rates on home equity loans are considerably lower than those of personal loans (which are frequently 10% or higher) and credit cards (approximately 20%). If you have a clean credit history and good credit score, you could get a home equity loan for 7% to 9% if you shop around. You can then use it to consolidate your existing debt so you just pay one loan each month - and save the interest you would have otherwise been stuck paying if you kept all of your existing debts separate.
Renovate your rental property
You don't need to limit your repairs and renovations to your main property. You may also be able to deduct the interest you pay on your loan if you use the funds to work on a rental property or a "second home (or qualified residence)." So if you currently have a rental home - or plan to buy one and renovate it before renting - a home equity loan can help you get it in shape this summer.
"Generally, you can deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 8a," the IRS says. "However, any interest showing in box 1 of Form 1098 from a home equity loan, or a line of credit or credit card loan secured by the property, is not deductible if the proceeds were not used to buy, build, or substantially improve a qualified home."
That said, if you're planning on going this route, make sure to speak to your accountant or a trusted financial advisor first to make sure your specific property qualifies. Learn more about your home equity options here.
The bottom line
A home equity loan or HELOC can be a smart financial product to utilize throughout the year. But if you're planning on renovating your home (or second residence) this summer and need cash to do so, it's an option worth pursuing, particularly when compared against other, higher-interest alternatives. It can also help when you sit down to review your personal finances over the next few months, particularly if you need a way to consolidate your debt into a more manageable form.
