Most homeowners tapping into the equity of their home with a home equity loan do so to complete a home improvement or remodel. While that’s a wonderful use of a home equity loan, there are endless possibilities when it comes to utilizing your home’s equity. Unlocking the power of your home’s equity can provide funding for both short and long-term goals. You can uncover some hidden funding for many needs. Here are some ideas, both traditional, and a few you may not have considered.
Six uses for a home equity loan
1 Investing in a second home or property
Using a home loan to fund a down payment for a second home or an investment property is becoming more popular. Smart investors look at this as a better financial move than withdrawing money from an investment portfolio. Homeowners whose first homes are paid off might consider this way of funding a second home. Something to consider, your monthly payment may be higher, because you would be financing for a shorter term than a traditional mortgage loan. Overall, a home equity loan might help you solve financing challenges when buying a second home or investment property.
2 Starting a business with a home equity loan
Small business loans are not often easy to come by. A financial institution may require extensive paperwork and financial projections. If you have a great business idea and want to move faster than a business loan allows, a home equity loan may be an option. As a bonus, home equity loan rates are lower than business loan rates. They also allow for more flexibility in how the money is used. Word of warning when using your home as collateral. It is imperative that you feel certain you can make your business a success and also make your loan payments.
3 Educational Expenses
Paying for college for either yourself or a child is a common use for a home equity loan or HELOC. Why are home equity loans a good way to pay for college? It’s simple. The interest rate on a home equity loan may be lower than that of a private student loan. According to U.S. News & World Report, the average tuition for a private college for the 2020-2021 school year is $35,087. Home equity loans are a good way to supplement various student loans, scholarships, and grants. They can be used to pay just about any cost associated with education, from books to housing or even day to living expenses while pursuing your education.
4 Using home equity loans to consolidate debt
While you may not have considered taking on more debt to pay off existing debt, it can be a smart move if done right. What does that mean? If you are using a low-interest rate home equity loan to pay off high-interest credit cards or personal debt, you can save money. If you can pay off debt faster and also save money, then it could definitely be a smart move. Just remember, your home is used as collateral for a home equity loan. Don’t get in over your head and make all of your payments on time. If using a home equity loan to pay down existing debt, prioritize paying off your home equity loan, before assuming any additional debt.
5 Wedding Expenses
While the cost of weddings dropped in 2020 due to the pandemic, they are on the rise again in 2021. According to The Knot, the average cost of a wedding in Pennsylvania in 2019 was $35,900 and it is climbing. Because of the high cost, couples and families need to look to loans as a source of covering the cost of wedding expenses. For homeowners wanting to pay the cost of a wedding, a home equity loan or HELOC can be a smarter, low-interest option to a personal loan.
6 Home equity loans for home improvements
Home improvements and renovations are one of the most popular uses for a home equity loan or HELOC. Tapping into the equity in your home to improve the value of your home is a smart move for homeowners.
The benefits of a home equity loan from Benchmark Federal Credit Union
Benchmark Federal Credit Union offers both fixed-rate home equity loans and HELOCs to meet all of your borrowing needs. Benchmark’s home equity loans provide borrowers with competitive, fixed rates for a range of one-time needs. This includes much of what we talked about above. Qualified borrowers are eligible for up to 90% of the appraised value of a home. Benchmark’s Ultimate HELOC currently features a low introductory 6-month rate of 1.99% APR* and two repayment options. A home equity line of credit may work better when expenses are spread out over time, such as for educational costs.
When considering a home equity loan, shop around and compare loans. Be sure to include Benchmark Federal Credit Union in your comparison. From funding a dream project to a life event, a home equity loan can help you realize your goals by providing the financing your need.
*APR = Annual Percentage Rate. Rates are for qualified borrowers and are subject to change without notice. The introductory rate of 1.99% APR is for the first 6 months. At the end of the introductory term, the rate reverts to rate according to credit score at the time of application: as low as Wall Street Journal Prime Rate – .51% for 80% LTV** and Wall Street Journal Prime Rate – .26% for 81-90% LTV**. The floor rate is 3.99% APR. $100 application fee for loans under $25,000. An early termination fee of $250 if HELOC is paid off & closed in the first 12 months.