subject: Making the Best of Home Equity Loans [print this page] Making the Best of Home Equity Loans Making the Best of Home Equity Loans
Homeowners can convert their home equity into cash by taking out home equity loans. The cash can be used to meet important expenses or to consolidate your unsecured debt. But a home equity loan is the not the only option for financial needs like repairing and renovating your house or paying your accumulated credit card bills. Take some time to shop around for other credit options offered by banks and financial institutions if needed.
Uses of home equity loans
Here are a few purposes for which you can consider taking a home equity loan.
Emergencies Financial experts have been advising borrowers to make use of their home equity for emergencies. If you stand the risk of losing your job due to the volatile job market, you can consider applying for a home equity loan while you still have a job, because no bank will find you eligible for a loan without a proper source of income.
Experts also advise you to take money from your line of credit or a home equity loan ahead of a financial crisis to cope with it effectively. If the markets are not favorable and you wait till the hour of need, you may face the risk of rejection from the bank.
Debt consolidation You can use a home equity loan to reduce the repayment on high interest credit cards and other unsecured loans through debt consolidation However, some financial experts believe that it is safer to keep your home equity in its place and save money to clear your credit card debts.
Capital investment If you are not using the home equity loan as a safety net, you can use it for high-yield investments. Some examples of good investments are:
Improving or renovating your home to increase its market value
Paying for your child's college education
Investing in low-risk, high-return stocks and bonds.
Real estate investment Using your money from the home equity loan to invest in another house or a real-estate property is a good choice. When you have sufficient income to meet your basic needs, take out a home equity loan with a term of at least five to ten years, and use the rent earned on the property to make monthly loan payments. This way, you will own a second asset and have an additional income to repay the loan.
How not to use your home equity loan
While borrowing money for productive purposes like home improvements and children's education is wise, using it for pure indulgence - such as a luxury vacation, purchasing a luxury car, boat or RV, or expensive home theatre sets, which depreciate in value over time or bring no returns, is totally foolish.
Also avoid taking a home equity loan to meet day-to-day financial expenses, such as purchase of consumer durables, grocery or clothing. It is just not worth risking your most valuable asset your home. Understand how home equity loans work and take the help of financial advisors or guidance counselors to make an informed decision.
