A home equity loan is a type of loan that allows you to use the equity of your home as collateral. It is an option that homeowners have available to them and that some people use to pay for major expenses such as home renovations, college education, or medical bills. These types of loans became popular in 1996 because they provided a way for consumers to minimize their tax charges for that year since other interest deductions were eliminated for most consumer purchases. Is it a good idea to leverage your shelter for cash? What is a legitimate reason for taking out a home equity loan? It can be tempting to use the equity you have in your property to pay for expensive luxuries, but there are only a few things that you should be spending a home equity loan on.
Home renovations are a popular reason why people take out a home equity loan. This idea actually makes sense, because making improvements to the home can greatly improve its value. The renovation could pay for itself and more, when it comes to increasing the value of the property. Of course, the value of the home is also dependent on other factors besides the renovation, so there are no guarantees.
Another reason why people take out home equity loans is so that they can combine all of their bills and debts into one, such as credit card debt, retail credit debt, and more. This can be advantageous, because the interest rate on a home equity can be less than other credit debt. Having a single monthly bill rather than having to keep track of several debts can also make things a lot simpler and improve your monthly cash flow.
Many parents have chosen to use their home equity loans to fund their child's university or college education. With the extremely high costs of post-secondary education these days, this option can make a lot of sense. However, if you are just about to consider retirement when your kids are going to college, you might want to look for scholarships or student loans instead so that you don't reduce the nest egg you planned to retire on.
The equity that you’ve built up in your home over time is precious and worth protecting. Therefore, when it comes to taking out a home equity loan, it’s important to carefully consider all of the pros and cons. For help with your decision, or to learn more about the perks of homeownership, contact us today!