4 ways home equity borrowing can help you now
Your home equity is exactly what it sounds like – the portion of your home that you own outright, as opposed to the portion owned by your mortgage lender. Building equity is an important reason why many people prefer to own their home rather than rent – real estate tends to appreciate over time, so paying money into your mortgage can actually end up increasing your net worth in the long run.
Another benefit to having home equity is that you can borrow against it – though you do have to meet some requirements. In order to take out a loan against your home equity, you'll generally need to own at least 15-20% of your home, meaning new homeowners probably won't qualify just yet.
If you're a homeowner, you may be wondering how you can make home equity borrowing work for you. Below, we'll break down how a home equity loan or home equity line of credit (HELOC) can benefit you now.
Learn more about how a home equity loan could help you here today.
How a home equity loan can benefit you now
There are a number of ways you can use a home equity loan or a HELOC to benefit your financial situation. Here are a few to consider:
Making housing repairs
Many people use a home equity loan or a HELOC to pay for home repairs. This can mean anything from replacing a busted furnace to doing renovations for a bathroom or kitchen. Doing repairs or remodels to your home can increase its value, which means that when the time comes to sell, you can get more money – and perhaps use some of it to pay off the HELOC or home equity loan itself.
Just make sure that the work you do will increase the value of your home more than the total you'll have to pay back in principal and interest. Otherwise, you'd have been better off not taking the loan to begin with.
Start looking for a home equity loan online now.
Consolidating your debt
A home equity loan or HELOC can be used to take pre existing debts and put all of them into one loan. Let's say, for example, that you have $5,000 in credit card debt, $10,000 left on your car loan and $4,000 left in student loans. You could take a $19,000 home equity loan out, pay off all of your existing debts and make one payment to your home equity lender until it is all paid off.
By doing so, you could also wind up saving money by paying a lower interest rate than you may have had on your other debts. Again, make sure to do your homework and compare the rate you'll get on your home equity loan. You don't want to end up paying more in interest than you would have with your original loans.
Helping in an emergency
A home equity loan or HELOC can be used to cover basically any emergency expense that comes up. This could be a medical emergency, a suddenly necessary car repair or to take care of a sick family member.
This is another situation where you want to make sure you aren't biting off more than you can chew. Don't take on debt you won't be able to afford to pay back, which could leave you in a worse situation than the one you started in.
Paying business expenses
If you dream of being an entrepreneur, the biggest problem may be getting the seed money to start off. If you don't have any potential benefactors, you can get some money from a HELOC or a home equity loan to fund the business. The best practice here is likely to take the loan and put it into a checking account for your business.
It's important to remember that many small businesses fail, so do your due diligence before borrowing against your home equity to fund yours. If you think it's a good idea, though, using your home equity to get some money to get started can be a worthwhile idea.
The bottom line
Borrowing against your home equity is becoming a more popular option for many Americans. It can be used for myriad reasons, including paying business expenses, consolidating debt or making home repairs. Just make sure you have a plan to pay off the loan, though, because your home is collateral in these instances. If you can't make the repayments you could wind up putting yourself in a worse position than if you had used another form of credit. Learn more about your home equity options here now.
