A home equity loan or home equity line of credit allows you to tap into the value of your home, and use the funds as needed. Here are three great ways you can take advantage of your home’s equity:
1. Home improvements
One of the most popular uses for home equity is for home renovations and improvements. These can be as major as adding a 1,000-square-foot extension to your home, as minor as replacing old carpet with new hardwood flooring or anything in between. Using your home’s equity for home improvement projects is a smart choice for multiple reasons. For one, the money you put into the renovations acts as an investment. If you choose improvements that increase your home’s value, you can make back the money you spent or even see a return when you sell your home. Also, if you use the funds from a home equity loan to increase your home’s value, you may be able to deduct the interest paid on the loan from your taxes (be sure to consult with your tax adviser if you plan to go this route).
2. Debt consolidation
Another popular use for a home equity loan is to consolidate high-interest debt. Paying off multiple debts at high interest rates can be difficult to manage. Using a home equity loan to consolidate debt to a single and low-interest loan can slash a pile of debt by several thousands of dollars and help shorten repayment time by several years.
3. Emergency expenses
Financial experts recommend having three to six months’ worth of living expenses stored in an emergency fund for when the need arises. If you’ve been struggling to get your own emergency fund off the ground, tapping into your home’s equity can be a great way to get that boost you need. You will have a large stash of cash to build your fund, and the manageable payment plan will help ensure you put money into savings each month. As a bonus, if you experience a financial emergency of any kind after taking out your home equity loan, you will already have the funds on hand to help pull you through.