Homeowners, do you know that you have access to immediate cash through the equity in your home? Yes, it’s true. Depending on how long you have owned a home, you have something that’s called “equity.” It is essentially the value of what your home is worth, subtracted from how much you have paid on your mortgage. For example if you bought your house for $200k and you have paid $100k, but your appraisal comes in at $250k, the equity in your home would be estimated at $150k. That’s a lot of cash, which can come in hand for a variety of reasons.
Many homeowners also believe that the only way to use their equity is for home renovation projects, which is not true at all. There’s many smart ways to use a credit union home equity loan or line of credit which we will cover. Before we do here’s something you should know: home equity loans and lines of credit are secured loans which means they offer a lower interest rate because you are putting your house up as collateral. Now that we got that out of the way check out these smart ways to use a credit union home equity loan or line of credit.
Home Renovation Projects
Have you been looking to spruce up your house a bit? Whether that means updating a kitchen, investing in hurricane shutters, or painting the interior of your house to increase the value of your home, a home equity loan or line of credit can be a perfect solution. Often times stores try to push credit cards onto their customers as they explore their remodels; however, this isn’t always the best route. Home equity loans and lines of credit are designed to support large sums of money and more times than not offer a more practical financial setup as well. Our recommendation is to explore which will allow more money to be obtained as well as which one will cost you less in the long run.
Lump Sum Balances or Debt Consolidation
The upside of owning a home is the equity accrued while you own it. Many homeowners will look to their equity in order to have a large disbursement of funds at one time. The most common reasons other than home renovation projects are to pay off lump sum balances such as medical debt, student loans, or other costly expenses such as funerals. Having a large sum of money all at once through a home equity loan also helps those who are looking to consolidate debt that way they have only one payment and never have to worry about either missing a payment or being late as it eliminate the stress of paying multiple payments at once.
Paying Off High Credit Card Balances
The number one reason (on top of spending), people can’t get past high credit card balances are the high interest payments. If you have room to use a home equity loan or line of credit, it may be beneficial to use it to pay off credit card balances as the interest rate may be lower which can save you hundreds maybe even thousands in the long run. It also helps you get ahead of balances and pay them off sooner than you would have. In the meantime, it frees up cash flow and can even boost your credit score if you’re actively paying down a balance as this will lower your debt to income (DTI) ratio.
Real Estate Investments
Interested in purchasing a second home or condo as an investment property? This may seem a little out of reach if you don’t have the access to a lump sum of money to use as a down payment. Many people aren’t aware that home equity loans and line of credit can be used for this purpose. Remember when we said they give you access to those large sums? They can be used as a down payment.
Before doing this we recommend working with a financial professional at your credit union to see if this is the best option and to create a re-payment plan. You’ll most likely only benefit from this solution if your investment property is making extra money so that you have the ability to pay off the loan or line of credit actively. It’s worth it to explore this option, especially if you are eager to take advantage of certain interest rates.
Now that you have an idea of the smart ways to use home equity loans or line of credit it’s time to get beyond what’s holding you back and secure your future. Whether that’s sprucing up your home, consolidating debt, paying off balances or investing in your future just ensure you are doing it at the best rate possible.