3 Smart Ways To Use Your Home Equity

Posted August 21 2017
by PenFed Your Money
3 Smart Ways To Use Your Home Equity - PenFed Your Money Blog

It feels good knowing that your home is not only your safe, secure nest but also your ace in the hole in a financial crunch. Home equity is one of the major advantages of home ownership. Your home equity — the value of your home, minus the amount you still owe on your mortgage — gives you a leg up when you’re in need of cash.

A home equity loan or home equity line of credit (HELOC) lets you borrow money using your home as collateral. You’ll often hear these loans referred to as second mortgages because they’re secured by the  home, just like your original mortgage.

Because you  are using your home as collateral, a home equity loan could be a better choice to finance projects and goals that return long-term benefits. The advantage: you leverage the value of your home to stay financially nimble. The disadvantage: your home is on the line as collateral until you’ve paid off the debt.

Home equity loans are perfect for covering short-term expenses like remodeling, education and financial emergencies.

1. Remodel to boost your home’s value

The classic scenario for a home equity loan or line of credit puts the value of your home right back into itself when you remodel or renovate. If you remodel according to consumer demand for popular features, you could then resell your home at a greater value.

Remodeling with a goal of increasing your home’s resale value means understanding the features that sell. What home buyers were looking for even a year or two ago may be different from what buyers are looking for today. Your mind may immediately leap to a kitchen or bathroom renovation, but decks and family room additions are the latest features surging up the list of big attractions for potential buyers, according to Remodeling’s 2017 cost versus value report.

2. Invest in higher education

What could be a smarter choice than investing in education? When financial aid or scholarships don’t cover all your education expenses, a home equity loan or home equity line of credit may be a better choice than your credit card or private student loans.

Put the value of your home to work financing educational costs in several ways. Consider a home equity loan to cover a lump-sum tuition payment or a home equity line of credit that lets you borrow only as much as you need exactly when you need it. If monthly payments are a concern, investigate an interest-only line of credit with a payment option that fit your budget.

3. Cope with crunch time

When life gets tough, there’s no place like home. Your home’s equity can give you just the financial buffer you need when a financial emergency knocks the wind out of your sails.

A home equity line of credit is the logical place to turn when you need to repair or replace a home system such as air conditioning or heating or a major appliance.

An interest-only home equity line of credit can provide cash with low payments in a financial pinch. Take advantage of the low, interest-only payments while you’re working through the crunch, then start paying off the principal as soon as your finances are back on solid ground.

Loan options that work

Put the power of your home’s value to work for your goals and dreams with a home equity loan. It’s the perfect solution for pre-sale home renovations, college expenses, financial emergencies, and big-ticket purchases like weddings or dream vacations.

With choices including a traditional home equity loan, a home equity line of credit, an adjustable rate home equity line of credit or an interest-only home equity line of credit, there’s no reason to keep worrying about how you’ll cover your financial goals. Explore the home equity options at PenFed.