|
WHY BORROW AGAINST THE EQUITY OF YOUR HOME
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.
|
