Getting a home equity loan or a home equity line of credit (HELOC) is an excellent way to leverage the equity built up in your home. However, it’s also risky. You’re putting your house up as collateral, so if something happens that makes you unable to repay the loan, you’ll end up losing your house.
Despite this risk, there are times when getting a home equity loan or line of credit actually makes a lot of sense.
When You’re Remodeling Your House
One of the best ways to use a home equity loan is for a project that will add even more equity to your home, like remodeling a room or building an addition. This is especially true since the interest rates on a home equity loan may be lower than those on a personal loan or personal line of credit.
When you Need to Pay Tuition
If you need help covering the cost of higher education, you might want to consider leveraging your home’s equity. You’ll probably get a better interest rate than you would from a private student loan, and your new degree should translate into a better job with more money that you can use to pay the loan back faster.
When you Have a Financial Emergency
If you need money due to an unexpected emergency, you might want to take out a home equity loan or HELOC to fix it. Admittedly, this won’t be the best way to raise money in a hurry, but it’s nice to know you can fall back on the equity in your home if you absolutely need to.
If You’re Using the Money for Good Debt
Both remodeling your home and paying tuition are prime examples of “good debt”—debt that is actually an investment that will ultimately help you generate more income and improve your net worth. Both paying tuition and remodeling your house will ultimately pay off in the future.
It’s worth pointing out, though, that even using your home’s equity to pay for a financial emergency might count as “good debt” depending on what the emergency is. If you have to get a home equity loan to pay for a car so you can get to work and keep earning a paycheck, for instance, that’s good debt.
What this ultimately means is that if you borrow against the equity of your house, you need to ask yourself why you’re doing it. Is borrowing against the equity of your house going to put you and your family in a better financial position or help keep you afloat? If the answer to that question is “no,” you’re better off looking for money elsewhere.
Get a Home Equity Loan at First Alliance Credit Union
A home equity loan or line of credit is a great way to leverage your home’s equity, but you need to make sure to use the equity for the right reasons, like investing in yourself or your property.
If you need to get a home equity loan or line of credit, become a First Alliance Credit Union member today. Our Lending Advisors will talk with you and make sure you can access your home’s equity in a way that works best for you.
