Finance Smarts: 5 Clever Uses of Home Equity

Building up equity in a home is a common way to make progress toward true financial security. Homeowners who pay down significant amounts of principal on their mortgages …

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Building up equity in a home is a common way to make progress toward true financial security. Homeowners who pay down significant amounts of principal on their mortgages end up with a valuable asset in the form of home equity.

Like with other forms of wealth, there are both frivolous and worthwhile ways to utilize home equity. The following look at five especially smart, strategic ways to employ home equity could be helpful.

  1. Consolidating or Paying Off Debts

Of all the loans the average consumer can take out, mortgages tend to have the lowest interest rates. Home equity loans fall into the same category since they are also backed by an especially valuable form of collateral.

Any homeowner who has amassed debts with much higher interest rates will do well to look into using home equity to pay them off. Consolidating a number of high-interest loans with the help of a company like National Debt Relief can make life a lot simpler.

The monthly minimum payments that result will typically be far lower than the sum total of the payments for the loans that were paid off. Turning several high-interest loans into a single one with lower fees will make getting back in the black much easier. While it will always be best to avoid taking on too much expensive debt in the first place, strategic use of home equity can be the best way to escape it.

  1. Paying for Education

It is no secret that the cost of higher education has been rising rapidly for many years. Even given that fact, the right kind of college or graduate degree can position a person to earn far more over the course of a lifetime.

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Tapping into home equity to pay for the education of a child or even a homeowner can end up being a wise investment. It will still be best to keep costs to a minimum, though, by using an inexpensive community college to fulfill prerequisites before transferring to a four-year school.

  1. Conservative Investments

Consumers with good credit scores and steady incomes can normally secure home equity loans priced around the prime rate. This will typically be far lower than the returns that can be expected from even a modestly bullish stock market.

In some cases, it can make sense to take out a home equity loan to fund an investment. Someone who hopes to retire soon but has not put away much in the way of savings, for instance, might make some much-needed progress via careful use of this option.

  1. Strategic Home Improvements

Some otherwise-appealing homes suffer with regard to market value because of one or two glaring flaws. Resolving such problems with the use of home equity can be a financially rewarding move.

Older homes with cramped kitchens, for instance, are quite often written off by buyers on that account alone. Expanding and upgrading a home’s kitchen or a bathroom might make a home equity loan pay off quite easily.

  1. Funding Retirement

Relatively few people end up retiring with as much cash as they would like. Using home equity to improve quality of life in retirement can be a reasonable, helpful option.

Naturally enough, that will mean not having as much wealth to pass on to heirs after passing away. In many cases, a home equity loan will end up being less costly than other available means of paying for living expenses.

Thoughtful Use of Home Equity Can be Rewarding

Just like with other types of borrowing, taking out a home equity loan should always be seen as a significant step. Homeowners who are strategic and responsible when using their home equity can easily find it to be a powerful tool.

 

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