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A home equity line of credit lets you put the value of your home to work for you. There are no restrictions to how you spend the money you borrow against a home equity line of credit, but many people use them for making home improvements, paying for education, paying off other debts or paying for high ticket items.
One of the most popular uses for a home equity loan line of credit is to make home improvements or repairs. In some cases, they might be necessary home repairs like repairing a leaky roof or replacing a failed furnace. Other borrowers use the money from a home equity line of credit to make additions that increase the value of their home or bring it closer to their dream home. You can use a home equity loan line of credit to pay for the materials for a new room addition, or to build a patio that will make your home more valuable.
Experts caution, however, that if you’re making improvements with an eye to selling that you keep an eye on the return on investment. Check with realtors to find out which home improvements are likely to increase the value of your home by at least 80% of the cost. In addition, if you’re taking out a home equity line of credit to make repairs to your home before selling, they suggest applying for the loan before you list your home for sale. Once your home is on the market, many lenders will shy away from extending a home equity line of credit.
Another wise use of a home equity loan line of credit is debt consolidation. Many people carry a lot of credit card debt – on not one or two, but many credit cards. Interest rates on credit card debt can be as much as ten percentage points higher than interest on a home equity loan line of credit. By taking out a home equity line of credit and using it to pay off all of your credit cards, you’ll be exchanging interest rates as high as 28% APR for monthly home equity line of credit interest rates in the range of 5-7% APR. Depending on the amount of credit card debt you’re carrying, you could be saving hundreds of dollars a year in interest charges by consolidating all your debts into one low interest home equity line of credit.
Paying for college tuition or a wedding? Paying for high-ticket items or expenses for education is another popular use for a home equity line of credit. Because a home equity line of credit is secured by your home, it’s often easier to get than an unsecured personal loan, and carries a lower interest rate. Add to those advantages the fact that the interest on mortgages on your primary residence is tax deductible, and that includes a home equity line of credit up to $100,000. Not only do you get a lower rate of interest when you pay for high ticket items with a home equity loan line of credit, you get to deduct the interest on your taxes.
You can also use a home equity line of credit to help you get through tough times like an illness or a period of unemployment. While many people turn to the equity in their home to cover medical bills or everyday expenses during unemployment, financial experts warn that it can be risky. Because a home equity loan of credit is secured by your home, home equity debt won’t be forgiven if you file for bankruptcy. You could end up losing your home with the proceeds going to pay off your debts.
There are many excellent ways to use a home equity line of credit. Whether you invest in improvements to your home, your life or your mind, a home equity line of credit can help you get what you want out of life.
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