A home equity loan or line of credit gives you an affordable, flexible financing option where you borrow against your home equity. You have complete freedom to use your funds however you want. Like any financing product, however, it is in your best interest to use your home equity loan or line of credit in a smart, responsible way. Here are some of the top uses for a home equity loan if your goal is to improve your financial situation and keep working toward your goals.
- Consolidate high-interest debts. How much money are you losing to high interest on your debts every month? Imagine if you could just have a single more affordable interest rate. That is what is possible when you consolidate your debts using a home equity loan. You roll the other debts into the home equity loan, and then you just have a single debt to pay, with the interest rate that’s more manageable. Debt consolidation can relieve financial strain now, but also save you a lot of money over the months or years ahead. It is easier to remember to make just one payment too, rather than juggling a lot of smaller debts that are harder to keep track of. So, you are less likely to miss payments. That can protect your credit score.
- Repair or upgrade your home. Your home is an investment. So, if you are going to borrow against your equity, it makes sense to invest more into it in ways that improve its market value and make it more suited to your lifestyle. You can use a home equity loan or line of credit to make repairs or upgrades. Replace your roof after storm damage, put a fresh coat of paint on your exterior or walls, install a solar panel system, add a pool, or make any other changes that to you are worthwhile. There are no restrictions on the types of upgrades you can use a home equity loan to make.
- Put money down on a property. If you are at a point in your financial journey where it makes sense to purchase a second home or vacation home or another type of investment property, you could use a home equity loan to help you make your down payment. Note that it is best only use a home equity loan to purchase property that appreciates, like real estate. We would not recommend using it to purchase a new vehicle that depreciates. But it might be fine to help you buy an inexpensive old car if you are in a pinch.
- Invest in education or business. There may be scenarios where using a home equity loan to fund education or business costs could be a good idea. You would only want to do this if it is a situation where you have a valid reason to be confident that investing in these pursuits would result in a profitable enterprise. One thing to be aware of is that trying to start a business is usually highly speculative, as most new businesses fail. So, it is important to be honest with yourself in your assessment before you decide to use a home equity loan this way.
- Bolster your emergency fund. An emergency fund should take the form of cash, not a loan. So, your basic emergency fund should be in a high yield savings account. It should cover a minimum of six months of expenses. Nowadays, 12 months is more appropriate for a lot of people. What happens in a situation where you exceed your emergency fund? At that point, you need to dip into other investments if you have them. If you do not, it is time to look to family and friends or government programs you have not expended. Hopefully you won’t be actively draining your resources for long. For certain small, short-term gaps you need to cover, it may make sense to use a home equity loan after your emergency fund runs out. For example, say your pay check is late, and you need to pay for gas to get to a part-time or temporary job while you search for a new full-time position. Having a home equity line of credit available might get you to your job. It also steers you clear of predatory lenders (i.e. payday lenders, which you should never use).
- Pay medical costs that are due upfront. What do you do if you nee a medical treatment and they demand you pay upfront? If you can afford to pay it in full in cash, then you are in luck. But a lot of procedures are more than most people can afford upfront. In that scenario, a home equity loan or line of credit can help you cover your costs without subjecting you to the high interest rate you might have if you went through some kind of care credit program. A home equity loan or line of credit can also help you pay for veterinarian costs, again sparing you from a higher interest rate.
Apply for a Home Equity Loan or Line of Credit in Ohio
Liberty Capital is based in Columbus, and can help you apply for a home equity loan or line of credit anywhere in Ohio. To get started, please give us a call at (614) 505-0620 to schedule your consultation.
