3 reasons to use a home equity loan
With inflation still painful and concerns over the stock market and banking sector prevalent, many people find themselves exploring additional ways to make ends meet. While this could take the form of personal loans or credit cards, homeowners should consider turning to their homes first.
By using a home equity line of credit (HELOC) or home equity loan, homeowners can secure reliable funding, typically at a lower interest rate than many other traditional forms of credit. If used for home renovations or repairs, they may even be able to deduct the interest paid when they file their taxes.
But why do people use home equity loans, exactly, and how can they be used effectively? That's what we will explore in this article.
If you're a homeowner considering a home equity loan, check your eligibility here now or use the table below to explore your local options.
3 reasons to use a home equity loan
While a home equity loan can be used for a wide variety of expenses, here are three of the top reasons many homeowners use this form of payment.
To make household repairs
Perhaps the most well-known reason for using a home equity loan is to make major household repairs, renovations or improvements. While many people may have enough saved up to do a little painting or replace a household appliance, they're unlikely to have enough in the bank to pay for larger projects. This is where a home equity loan comes in handy.
Homeowners can take out a home equity loan to replace their roof, renovate a kitchen or bathroom or fix up their backyard. The options for fixing up a home are unlimited. By using a home equity loan for household repairs, owners will experience two benefits.
First, due to the improvement, they're likely to see the value of their home increase. Second, they'll be able to deduct interest paid on the loan come tax season. "Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer's home that secures the loan," the IRS says. "The loan must be secured by the taxpayer's main home or second home (qualified residence), and meet other requirements."
In short: If you're a homeowner looking for a smart way to pay for major household renovations and improvements, a home equity loan may be your best bet. Explore your home equity loan options online now or just use the table below to crunch the numbers.
To pay for student loans
Homeowners with existing student loans may find that a home equity loan offers more favorable terms than their current student loan. In this case, it makes sense to use the former to pay off the latter. This can also be applicable to homeowners with children saddled with student loan debt.
Remember, only federal student loans are eligible for many forgiveness plans. Those with private student loans have limited options, mostly relegated to refinancing at lower rates. But if a home equity loan can be secured for a lower rate than what borrowers are currently paying, it's better to use that and pay the loans off now and save on the interest.
To pay for emergencies
It's always helpful to have money saved for a rainy day. The unfortunate reality, however, is that many homeowners have little saved away for emergencies as most of their money has gone into their homes. It makes sense, then, to use that home to help pay for unexpected expenses. A home equity loan can be used to pay for significant medical expenses that may have otherwise gone on high-interest credit cards. It can also be used to make major repairs stemming from accidents or weather-related emergencies.
When going this route, however, be sure to keep it temporary. A home equity loan should only be used as a source of funding until the emergency or urgency has passed, not permanently. Otherwise, you could risk using all the equity in your home.
Explore your home equity loan options online today to see if it's right for you.
The bottom line
There are many smart reasons to use a home equity loan instead of other forms of credit. Arguably, the best and most popular reason is for major household repairs and renovations. Other times, a home equity loan may be valuable to help pay student loans or for emergencies when other cash is unavailable. Do your research to determine if a home equity loan can work for you.
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