You can use your home equity for more than home improvement projects. Home equity is the difference between what you owe on your mortgage and what your home is currently worth. You can use your equity to get a home equity loan or line of credit, which can then be used in a variety of helpful ways.
What To Use Home Equity For
Once you receive your funds, there are many things you can use home equity for.
- Consolidate Debt – If you have several high interest loans or credit cards, using your home equity to consolidate debt may be a good option for you. Be sure to compare home equity interest rates with your current credit card rates. You could save money on interest by consolidating.
- Starting a Business – If you’ve been wanting to expand your business or need some help pursuing a long-time business goal, your home equity could help you.
- To Finance a Vacation Home or Investment Property – Using a home equity loan to buy another house is an option for you. You can use the funds as a down payment for a vacation home or an investment property.
- Weddings – The cost of weddings can add up quickly. You can use home equity for your wedding. A home equity loan or line of credit is a resource for you to borrow funds from rather than opening or using a credit card which typically comes with a higher interest rate.
- Vacation – Whether you’ve had a certain destination in mind for years or your friends planned a wedding in Greece, your home’s equity can help fund your vacation.
- Emergency Fund – If you just want added peace of mind by knowing you have money available in case of an emergency, a home equity line of credit is something you should look into. You will only pay interest on the money that you use, similar to a credit card. You can have the line of credit available for seven years, and not pay anything on it unless you need to use it.
- Large Purchases: Antique Vehicle, Boat, RV, Off-Road Vehicle, Trailer, etc. – Depending on what you plan on purchasing, a home equity loan or line of credit can have a lower interest rate than other financing options. RV loans tend to have a higher interest rate than home equity products. Regardless, you have the option to use home equity for a large purchase.
Additionally, many financial institutions will only approve vehicle loans for vehicles that are less than six years old. A home equity loan can be used to buy an antique vehicle or other older vehicles.
“There are endless possibilities for what you can use your home’s equity for,” Diamond Credit Union Mortgage Originator, Brenna Eshbach said. “It’s just a matter of determining if a home equity loan or line of credit is the best option for your situation. I can help you decide which is the best for your needs.”
How Does a Home Equity Loan Work?
A home equity loan or line of credit is a loan where your house is used as the collateral. The exact loan amount is determined by your home’s current market value and the balance you have left on your mortgage. The difference between the two is the amount of equity you have, which is how much could get approved for. Another thing to keep in mind is that home equity loans are paid back monthly.
If you are approved for the loan, an appraiser will determine your property’s current value and then compare it to what you’ve paid on your mortgage.
You will need to decide whether your needs will be better met with a home equity loan or line of credit. A loan is a lump sum, whereas a line of credit is a revolving door of funds that can be used like a credit card.
You can use home equity for an abundance of things. For a more in-depth overview of home equity products, check out this Diamond story, Home Equity Loan vs. Home Equity Line of Credit: What’s the Difference? Additional homebuying tips can be found here.