Home equity loans are a great way to get money quick from the investment you have already put into your home. Since for many people, their home is their largest investment, it is not uncommon to use a home equity loan when you need to free up some cash. However, there are some situations where you are not advised to use a home equity loan. Here are some instances where you should and shouldn't use a home equity loan.
1. You Can Use A Home Equity Loan To Remodel Your House
If you want to make some repairs to the house and need some cash, you might consider getting a home equity loan. This is a good investment because whatever you put into the house you are likely to get back out when you sell the house. Upgrades like fixing a kitchen, extending a master bed and bathroom, and putting in a deck or a nice yard will all pay off when you end up selling your house.
If you do choose to remodel, just make sure you are investing in changes that will actually increase the value of the home. Buying things like furniture may not be the greatest investment since you will not get your money back.
2. Do Not Use Home Equity For Unsecured Debts
If you have a lot of consumer debt and credit card debt, you might be tempted to take out a home equity loan to pay off these debts. But you should avoid this temptation. Your home is a secured debt. That means that even if you end up declaring bankruptcy to get rid of your consumer debt, you may be able to keep your home. If you use your home loan, which is a secured debt, to pay off unsecured debt, you could be hurting yourself in the long run.
3. You Should Use It For Retirement
Lastly, if you need money for retirement and health care costs, you can pull from your house. As previously mentioned, many people have their house as their largest investment, which means that when it comes time to retire they need to pull from the home. That is fine so long as the money is being used for things that you need rather than things like playing. There is a good chance you will need that money for end-of-life expenses.
By understanding what you should and shouldn't use a home equity loan for, you can protect your investments.