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5 Creative Ways To Utilize Equity Take Out

You’ve no doubt seen the increase of home values over the past few years.

 

This means there are many opportunities to use your home equity to renovate or improve your current financial situation.

 

Before you do this, you first need to have a good reason. This is your house you are borrowing from, after all.

 

So you need to think carefully about how you are going to use the money, before you take out a home equity loan.

 

In this article, we’ll go over the 5 most creative ways of utilizing home equity that you might not have thought about…

1 - Pay For Your Wedding

This is a common way of using your home equity, and one that can help reduce the stress of getting the money for your wedding.

 

A wedding can cost over $100,000 in some areas, especially with a big guest list, and using home equity can be the best way to get the funding.

 

If you are a parent that is planning a wedding, then this is a great way to cover the costs.

 

Creating a budget with good estimates of all the costs and a list of everything that is required is very important.

This will save you a lot of time and money as you work through the process of planning everything, and will allow you to see how much of your home equity you need to use.

2 - Pay For Your Schooling

Using home equity can be a fantastic way to fund your education, because the interest rates can be lower than a student loan.

 

Paying for your education to potentially move up into a higher tax bracket is a very positive use of home equity.

 

However, before you use your home equity you need to look at all your options for student loans, especially the interest rates and the terms of the agreement.

 

Remember to calculate the monthly payments and determine whether or not you can pay them off before you retire.

 

If you don’t think it will be possible, then a student loan may be your best option as your child will have more income-generating years to pay it off.

3 - Pay For Your Home Renovations

HELOC-Reno

This is usually one of the most common reasons you would want to utilize your home equity.

 

You can raise the value of your house, and gain more interest from potential buyers in the future when you decide to sell.

 

However, if you plan to sell your house then you need to remember there are different types of home improvements that are available.

 

Don’t make the common mistake of using equity to add features to your house that doesn’t increase its value.

 

Usually the best home improvements that have the best return on investment are entry door and garage replacements. Other types of improvements include a new patio, a new deck, and a new roof.

4 - Pay Off Your Car Loan

HELOC-car

Another great use of home equity is paying off your car loan.

 

Being able to pay off your car fully will help to reduce your monthly costs, such as the interest on your car loan.

 

Sometimes this may be an attractive option for you, if you are in a tight spot and need the extra cash.

 

Paying off your car early can have double benefits, because you not only save on the interest over the full term of the loan, but you also remove a monthly payment from your expenses.

 

However if you are trying to build your credit rating or have higher interest debt to pay off, you may want to reconsider paying off your car early.

 

Also, you need to review the terms of your contract and make sure there are no payoff penalties for leaving the contract due to paying it off early.

 

This is a rare occurrence, but some lenders may charge you a penalty fee.

 

It’s up to you to decide if that fee is more or less than the amount of money you’ll save on the remaining interest of your car loan.

5 - Investing In Long Term Assets

Did you know that some homeowners use their home equity to invest in the stock market or other real estate?

 

They often expect the returns to far exceed the cost of an equity loan…

 

This is risky of course, because the stock market is very volatile and there are no guarantees that it will yield your desired return on investment.

 

The same can be said with using home equity to invest in real estate, there is no certainty that the property you invest in will bring a return on investment.

 

A vacation home for your family that requires a down payment would be a great use for home equity.

 

However, if you want to invest in a high risk asset it is usually a good idea to look at a different option than home equity.

 

Always keep in mind that financial management is the determining factor between a successful investment or a failure…

Conclusion

While home equity can be a powerful financial tool, it can also be a disaster if not managed correctly.

 

Always be sure to run the numbers before using your home equity, to ensure you don’t run into financial problems down the line.

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