Top 4 Reasons To Apply For A Home Equity Loan
Whatever your reason for borrowing money, you should be sure to consider your options and find the type of loan that's right for your financial situation. One option you should consider is a home equity loan.
Your home is probably your biggest asset. You can put its value to work by taking a home equity loan with the house as collateral. It's a safe option for home equity lending institutions, so they can give you excellent rates because they know they'll still get their money back even if you're unable to make your payments.
Below are four ways tapping into your home equity can benefit you:
To Complete a Valuable Home Improvement Project
Taking out a home equity loan to renovate your home is a smart move, especially if those renovations boost your home's value. For example, a mid-range bathroom remodel can boost your home's value by 67.2% of its cost, while a kitchen remodel can increase your home's value by 72% of its cost. Installing energy-efficient systems like solar panels can also add your home's value and lower your energy bills.
Additionally, home improvement projects can increase your investment opportunities long-term. By increasing your property value, you will have access to more borrowing opportunities. You may also benefit from reduced interest payments for your mortgage loan.
To Consolidate Your Debt
Using your home equity loan to pay off debts with higher interest rates is a good way to manage your monthly bills. Some common examples of high-interest debts include credit card debt and car loans.
However, debt consolidation will not change your spending habits. If you are consolidating your debts due to financial challenges, you need to budget carefully for your loan payments since defaults or late payments could result in credit issues and even in the loss of your home.
To Pay for Emergency Expenses
Financial experts advocate for emergency funds to handle any crisis that may arise. But depending on your situation, the emergency fund may not be enough. Perhaps you're dealing with large medical expenses or a sudden job loss.
In such instances, taking out a home equity loan makes perfect sense. With the low interest rates on most home equity loan programs, you won't be left in deeper financial trouble.
To Finance You or Your Child's Education
Most people today are turning to home equity loans to fund their education. Perhaps that's because the interest rate on home equity is lower than on student loans. Or maybe it's because they can borrow more.
Whatever the case, a home equity loan makes it easier to fund your education and that of your children. Depending on your home equity, you can have enough money to cover all your education costs without touching your retirement savings or taking other more expensive loan options.