What should you do with $25,000 in home equity?
There's a good chance that your home is the most valuable asset you own. And if you've owned it for a while, you probably have quite a bit of equity in it - that's the difference between the amount of money your house is worth and how much you owe on it.
There are a couple of ways to tap into your equity without impacting the terms of your primary mortgage. These include:
- Home equity loan: A home equity loan works like a second mortgage. The lender gives you a loan using your home's equity as collateral. The loan will typically come with a fixed interest rate and payment, but there are variable options available.
- Home equity line of credit (HELOC): A HELOC is a revolving loan that's backed by your home. When you use a HELOC to access your equity, you can spend it on demand as long as your debt stays below your HELOC's spending limit. Of course, the more you spend, the higher your monthly payments will be. Moreover, most HELOCs have variable interest rates.
Although most lenders won't let you tap into 100% of your home's equity, you may be able to borrow between 80% and 90% of it. Let's say that works out to $25,000. What should you do with the money?
Tap into your home equity today to build a better financial foundation for tomorrow.
What should you do with $25,000 in home equity?
If you have $25,000 in home equity available to you, you have access to a tool that can change your financial landscape for the better. Here are some of the best ways to use your equity:
Consolidate high interest debt
Credit cards and other unsecured debts are known to have exorbitant interest rates. Unfortunately, that could mean that if you're making minimum payments, you're not paying much toward your principal balance.
Your home equity, however, could get you out of debt quickly.
"It's a matter of doing some simple math," says Patrick Yono, founder of Sure Life Financial in Novi, Michigan. Yono says to ask yourself if a home equity loan can "help reduce my overall debt in the long run?"
In the vast majority of cases, the answer is a resounding yes. If that's the case for you, your home's equity may be your key to debt freedom.
Use your home equity to get rid of high interest rate debt now.
Take care of home repairs
As a homeowner, you're going to have to deal with home repairs from time to time. There's no way around it. Unfortunately, some of those repairs can be costly. For example, roof, HVAC, electrical and structural repairs can all cost thousands of dollars each.
The good news is that you can use your home equity to cover these costs. Moreover, there are a couple of additional advantages to using your equity for home repairs:
- Tax deductions: As long as you use your equity for eligible home repairs, you can deduct the interest you pay on the loan from your taxable income. But there's a caveat: You must use the money from the loan to repair the home you used as collateral. So, you can't take advantage of the tax deduction if you use a home equity loan on your primary residence to repair a vacation property.
- Home value: Home repairs will typically either help you maintain or increase the value of your home. After all, if your roof is out of date, it could impact your home's value negatively. However, if you use your home equity to repair it, you'll maintain the value of your property.
Expand your earning potential
Your home equity could also help you earn a higher income. Some of the most common ways to use your home equity as a means to increase your earning potential include:
- Education: You can use your home equity loan to pay for your education, whether that be college courses, trade school or other training programs.
- Start a business: Your home equity may be able to provide the startup capital you've been looking for. You could use it to start your business, purchase inventory, hire help, pay for advertising and more.
- Purchase tools and equipment: If you're a tradesman there's a good chance you can earn more money by purchasing more equipment. After all, better equipment could make you more efficient at your craft. Moreover, some companies prefer to hire workers who bring their own tools to the job.
Access your home equity to expand your earning potential today.
The bottom line
Your home equity isn't just an interesting number you can add to your net worth - it can also be an opportunity to build upon your financial stability. Tap into your home equity now to consolidate high interest debt, take care of nagging home repairs or even expand your earning potential.
