If you qualify for a home equity loan, the cash can be used to finance practically anything.
A home equity loan, often referred to as a “second mortgage,” lets you borrow against your home’s value over the amount of any outstanding mortgages. Home equity loans allow you to borrow a fixed amount of cash in one lump sum, which can help you finance things you may not be able to afford with your monthly salary. This approach is not completely without risk since your house is on the line. Still, many people prefer home equity loans over credit cards and personal loans, because the interest rates are usually tax deductible and significantly lower.
Here are some of the most common uses of a home equity loan.
Pay off high-interest debt.
Home equity loans are a convenient, low-cost alternative to carrying high-interest debt. If you’re juggling college loans, medical bills and credit card debt, you’re facing multiple monthly payments with different due dates. By using your home equity loan to pay off those balances and combine it all into one single payment per month at a lower rate, you can simplify your bills, reduce the chance of missed payments, and repay the debt faster should you stick to the same monthly payment amounts.
Upgrade your home.
Are you dreaming about adding a bedroom or giving your kitchen a total makeover but don’t have the money for such a huge project? One of the common reasons for taking out a home equity loan is to finance home repairs or improvements. The ability to put money back into your home and increase your property value is one of the major benefits of a home equity loan.
Gear up for back to school.
For many parents, it's simply not possible to fund their child’s education upfront with their savings or income. Home equity loans are one of the least expensive ways to pay for private, secondary schooling or college. Home equity loan rates are lower than most tuition loan rates and the funds can be used to purchase uniforms, supplies, laptops, dorms fees, etc.
Book a last-minute summer vacation.
If you’re yearning for a break but can’t quite afford your dream trip, you may be tempted to use your home equity loan to finance a lavish last-minute vacation. We generally recommend you stick to spending money that you’ve saved ahead of time for experiential purchases since they don’t accrue value. Still, there's nothing stopping you from using your home equity cash to fly you and your family to the Bahamas, reinforcing the fact that you can spend your home equity money on practically anything.
A home equity loan can be a valuable tool for a responsible borrower. By leveraging your greatest asset to access a lump sum of cash, you can cover a large purchase or reduce monthly debt payments.