Home equity loans can help people meet a variety of financial needs. With this type of loan, you let the equity you have built up in your home pay for other expenses in life.
Here are some of the benefits to taking out a second mortgage or a home equity line of credit.
Something to consider when you take out a home equity line is that lenders will give you lower interest rates for larger loans. It may be a little scary to take out more money than you need, but with a little discipline, having more money at a lower interest rate is worth it. A smart use for the extra money is paying off crazy-high credit card debt or student loans. Also a great idea is to use the money to pay down the home equity loan itself, now that it has helped you secure the lower interest rate. Just be sure the lenders won't penalize you for doing this, but generally they will only impose penalty fees if you close out the line of credit too soon. A good mortgage broker will have more strategies like this for you to try, so make sure you develop a good relationship with your broker to take advantage of all the advice they have to offer.
If you need money fast at a low interest rate, a home equity loan may be your best option. The best feature of an equity loan is that you can often obtain a larger amount of money with a low interest rate and even low monthly payments. Payments on an equity line are based on interest instead of the principal.
If you are going to cash out your home equity to invest in a money-making venture, be sure you realistically weigh the risks. Make sure your new investment does not harm your ability to pay back your mortgage. Consult a financial advisor before using a home equity loan for any money-making venture. Protect yourself and protect your home by making good decisions based on quality information.
Home equity is a tremendous asset and not to be squandered. For some homeowners, equity is their largest single retirement investment. You shouldn't use this money for vacations or shopping; it should be used for home improvement (a reinvestment in the home), to free yourself of more expensive debt, or for financial emergencies.
Another good use of your home equity is to invest in a retirement fund. An IRA or other long-term growing investment will turn your home equity line into more money. Consult a financial planner to determine the best ways to reallocate your investments. They can help you assess whether it’s better for you to leave the equity in your home instead of putting it in another financial venture. Follow the advice of a professional.