The value of your home equity will remain an unusable asset unless you take steps to unlock it. As you continue to pay your mortgage installments, the home equity value continues to rise. Value of home equity may also increase if there is a rise in property prices in your area. Rather than let it sit idle, you can make use of the value of home equity. There are various options, as to how you can take full advantage of your home equity. Some of these are described below.
Home improvement – Living for years in the same environment can get a bit boring. The solution is home improvement or home renovation that you can get done via a home equity line of credit (HELOC). The process for HELOC will be similar to that of applying for a mortgage. Your ability to pay your loan will be evaluated by examining your credit score, debt-to-income ratio, annual income, etc. The lender will also assess the current market value of your home.
College education – Getting access to top quality education can be a big boost for your child’s career. However, college education can be quite expensive. You can use HELOC to fund your child’s college education. Using HELOC works out better than student loan when you do not want your child to be burdened with debt at an early age.
Debt payments – Using HELOC, you can pay off your high interest loans such as car loans and credit card debt. With HELOC, you can consolidate all your debts into a single debt. This will make life simpler and you will probably be able to benefit from a lower interest rate. When consolidating loans using HELOC, make sure you will be able to repay the installments. Because defaulting on credit card dues won’t affect your home, but defaulting on HELOC can make you lose your home.
Emergency expenses – Financial advisors often recommend that you create an emergency fund to deal with unpredictable developments. However, this may not be possible for everyone. Thankfully, you can use HELOC to deal with a temporary financial crisis. For example, it can be situations such as losing your job or having to pay large medical bills.
Starting a new business – Every new venture will require some amount of funds to begin with. Borrowing from market sources can attract high interest rates. If you are confident about your repaying capability, you can consider HELOC to fund your new business. HELOC should be avoided in case you are venturing into a high-risk, high-profit scenario.
There are various other ways in which you can use home equity to your advantage. For example, pursuing higher education, wedding expenses, etc. Just make sure you use the funds in a careful manner and avoid being extravagant. After all, unlocking home equity means new installments to be paid every month.