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There are countless reasons why homeowners borrow against the equity of their property. Two of the most common are to consolidate debt and pay for home improvements. Some other common uses of equity loans are: paying for college tuition, medical costs, taxes, and large ticket purchases.

Below are details on how to use equity lines and loans:

Home improvements
Making home repairs and upgrades can result in a safer home that is more energy efficient, better looking, comfortable, or a combination of these things. Ultimately making home improvements will increase the value of your home.

This is a resourceful use of equity debt – utilizing it in such a manner that your home becomes more valuable. If you would like to use equity cash in order to prepare your home for sale, it is important that you apply for your loan prior to putting the house on the market. It would be difficult for you to find a lender willing to grant you a loan if your home is already up for sale.

Consolidating debt
It is very common for homeowners that are in over their head in high interest credit card debt to use the equity from their homes for debt consolidation. Being that interest rates associated with credit cards are typically 10 percentage points higher than rates on equity lines of credit and equity loans, you will save money by reducing your monthly interest costs.

However, using the equity from your home for consolidating debt can be dangerous. It is common for people in this situation to run up their credit card balances again resulting in more debt, with no equity to pay it. When you use an equity loan to consolidate, it would be a good idea to cut up all of your credit cards except for one to be used in the event of an emergency.

Misc. (For education and medical expenses, unemployment and big ticket purchases):
Occasionally, the simplest method for paying tuition and costs for your children’s private school, or for college, is to use your home’s equity. This is especially the case for families that have incomes that are above the threshold for qualification for student loans and grants.

An equity loan or line of credit can blessing in the event that you are hit with medical bills that end up costing you thousands of dollars, or if you lose your job. Equity loans equate to lower interest rates and offer great tax advantages; making them an excellent option when looking to finance a motorcycle, car, boat, or some other sort of high-priced item. It is also very common for homeowners to use the equity from their home for making a down payment on a vacation house.

There are some dangers associated with home equity loans when paying your debts. Suppose you file for bankruptcy, normally all of your unsecured debts would be eliminated. However, once you secure the debts with the equity from your home, you are going to be stuck paying them. In the event that you can make the payments and default on your loan, you run the risk of losing your home in foreclosure. Therefore, it may be a better idea to use money you have in savings, stocks and bonds, or your 401(k) or retirement account for your equity debt needs.




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