3 Smart Tips for Using Your Home Equity Line of Credit
A home equity loan can provide you with a ready source of funds at any juncture. If you need money, your home equity is there waiting on you to use, if you qualify. While you can use it for almost anything you want, there are certain uses that are smarter than others. Using your home equity for a good reason is essential to the safety of your financial future. You only get to use the equity once, therefore, you should use it judiciously. Here are a few smart tips for using your home equity loan or home equity line of credit.
1. Home Improvement
One of the best uses of home equity funds is to use the money on home improvement. When you borrow money from your home equity and use it to improve the structure, you will be adding value. This will possibly create even more equity in the property. You could use the money to update outdated features in the house, add on a room, or replace flooring. The options to improve your home are almost limitless. Just make sure that you are making smart investments in your home. Only put money into things that you think will make a difference in the value of your house. You might even consult a real estate professional before you make a repair with the money. This way you will make sure that you are getting the best use out of your home equity funds.
Using your home equity money for investments is another option that can be smart. This depends largely on the quality of the investments that you are interested in. Before you borrow money from your house to invest in something, make sure that the investment is sound and has a high probability of success. Do your homework before you give your money to someone else. If you will receive a higher rate of return than you have to pay in interest, it would make sense to invest.
3. Auto Loans
Many people fail to consider using their home equity to fund a car purchase. However, this makes sense on a number of different levels. For one thing, you can probably get a better interest rate with a home equity loan than you could with an auto loan. This is especially true if you are buying a used vehicle. The interest rate on used vehicles is usually much higher than with a new car. Therefore, home equity interest can be very attractive in that situation.
Besides saving you money on interest, the tax benefits are great as well. With a home equity loan, you can deduct the interest paid on your income taxes. With an auto loan, you can not deduct any interest. Therefore, you will save money each month on the car payment, and get more money back on your taxes.