The equity in your home is an asset, so when you borrow against it, you want a good purpose for the money. Ideally, the reason for the loan is a long-term investment that will provide returns far beyond the cost of the loan. The following are three good reasons to consider an equity loan.
To pay for home improvements
This is a popular reason to get an equity loan, but you should focus on those home improvements that will add value to your home. Of course, this is not a requirement from home equity loan lenders in order to get approval, but it is often a good idea to calculate the potential increase in value your home will realize after the improvement is made. For example, if you wan to install a swimming pool, how much will it cost versus the appreciation in your house? Naturally, this is not the only factor. If it is something that you will truly enjoy such as a pool, sauna, brick grill, or even a new patio, then money is not the only thing to think about.
To help pay for your child’s college tuition
There can be no greater investment than your children’s education. Unfortunately, things can happen in a parent’s life that force them to come up short for the financial means to pay for their children’s education. However, if you have equity in your home, you can use this asset to borrow money to help pay for their education. This is often a better alternative than your child borrowing money in the form of a student loan. These loans can take a long time to pay back, and you don’t want your child to be saddled with student loan debt when they first start down the road of a career.
To consolidate your debt
If you have several debts, you can borrow against the equity in your home to pay off all of your debts, and then have a single payment to an equity lender. There are a couple of things to keep in mind. The first is that you should get a loan to cover all of your debts, but it is not necessary to use all of the equity in your home. The second issue is the type of debt. If all of your debt is unsecured, you may want to think twice because you will be exchanging unsecured debt for secured loan, but this may give you a lower interest rate, so it may be worth it.
If you decide to go ahead with an equity loan, the next step is to get a few quotations and compare the offers.