Sure, you can use your home equity loan to upgrade or repair your home. After all, the loans were designed with home improvement in mind. However, there are other good and productive things you can do with home loans. Without further delay, here are smart uses for home equity loans.
What is a Home Equity Loan?
Let’s start there. Essentially, when you take out a home loan, you’re borrowing cash against the equity you have in your home. What is equity, you ask? Well, that’s the difference between your home’s market value and how much you owe on your mortgage. For example, if your home’s market value is $200,000 and you owe $100,000, you have $100,000 in equity.
Why are Home Equity Loans Beneficial?
For one thing, you’re talking fixed interest rates for such loans, so you don’t have to worry about your rate fluctuating. Further, your payment amount is the same each month.
Moreover, you can pay for major purchases over time, instead of all at once, and your interest rate on such a loan will be among the lowest out there – certainly lower than what’s on your credit cards. Note that your ultimate rate will depend on your income and creditworthiness.
Another advantage is that once approved, your loan can be processed rather swiftly, often within days. Moreover, you likely will be able to deduct the interest you pay on a home equity loan on your taxes.
Uses for a Home Equity Loan
While there is a myriad of possible uses for home equity loans, it should be emphasized that your home is collateral for such a loan. This is what keeps loan interest rates low – but it also means that you could lose your home if you fail to make payments.
With that in mind, beyond home improvements, here are potential alternative uses for a home equity loan:
- You can use it to establish an emergency fund. Financial experts recommend that you have three to six months of living expenses set aside for unforeseen situations such as a layoff or car repair.
- You can lose the low-interest rate to pay off or consolidate high-interest debt such as from your credit cards. In fact, you can clear such debt with a low fixed-rate home equity loan of as much as $150,000. Learn more at Achieve.
- You can put the cash into investments, particularly those that aren’t subject to the vicissitudes of public markets.
- You can use it to pay cash for a vehicle, which is nearly always preferable to financing one.
- You may want to take advantage of the low rate to pay medical bills. This is preferable to taking out a higher-interest personal loan or using plastic.
- If you ever dreamed of starting your own business, an endeavor that requires start-up funds, you can use a home equity loan to do so.
- If you have a wedding or other significant celebration coming up, a home equity loan is a good way to finance it. Again, the relatively low-interest rate here is key.
- Perhaps you’ve been putting off a trip abroad for years now and can’t see yourself putting away a couple of dollars here and there to make the journey happen. Use a home equity loan and book the trip of your dreams.
- Another possible use for your loan is to fund your or your child’s college education.
What is necessary to pay attention to?
With any loan, there are a few things you should check. First, before entering the first bank you come across, check the interest rate in several of them because they can often vary significantly. Think about whether you want a fixed or variable one. In the opinion of the majority, a fixed interest rate is perhaps a smarter move so that you don’t have to worry about changes in the exchange rate of certain currencies.
So, yes, perhaps many of them never occurred to you, but there are plenty of smart uses for home equity loans. Consider them carefully, in accordance with your needs, then take advantage of the low-interest rate to further your life goals.
Although television and other commercials may make it seem as if obtaining a loan is simple and requires only a few clicks of a button or a trip to the bank, in reality, it does not have to be that way. When it comes to getting a loan, especially a housing loan, it takes a certain amount of time for the bank to check who is granting it. Namely, before granting a loan for the purchase of an apartment or a car, the bank will check your financial picture – it will look at your income, savings, debts, any existing loans, and your bill payment history. If you want to finish the paperwork as soon as possible, do your best to prepare all the necessary documentation so that you don’t waste time unnecessarily. If the bank cannot assess the creditworthiness based on the submitted documentation, it may request additional documentation from the client, and also reserves the right to reject the credit application.
If you have decided to buy an apartment/house with a loan, first think carefully about how much of your monthly income you can set aside for paying the installment. This is extremely important, because the amount of credit that would be reasonable to take depends on the amount that you can set aside from your earnings for a long period of time.
A loan is a banking product that most people need at some point in their lives. Loans are taken for different purposes, and in this relationship, the creditor (bank) transfers a certain amount of funds to the debtor for an agreed time and under defined conditions.
Before signing the contract, ask everything you don’t understand about the contractual relationship and the conditions under which the loan is granted. Do not sign the contract if you feel that the terms of the contract are not acceptable and if you have not previously understood what obligations you are assuming.