Using a home equity loan creatively gained significant traction in recent years. After faithfully paying their monthly mortgage premium, working families build up considerable equity they can use for a wide variety of purposes. If you would like to enhance your quality of life, address financial concerns, or need money to pay for an unexpected expense, you may be encouraged to learn more about how a home equity loan works and how people like you are putting theirs to work.
What is a Home Equity Loan?
A home equity loan is a product that allows property owners to leverage the difference between an outstanding mortgage and fair market value. After subtracting the mortgage amount you still owe from the value of the property, the remainder represents equity. That amount can be leveraged to secure a separate installment loan. Because the home’s equity is employed as collateral, property owners typically gain access to low-interest rates and favorable terms.
A home equity loan’s borrowing limits are typically based on a combined loan-to-value ratio that generally involves 80 to 90 percent of the property’s appraisal price. Beyond the amount of equity someone has accumulated, credit scores, annual salaries, and debt-to-income ratios all play a significant role in interest rates and repayment terms.
Qualified borrowers tend to gravitate toward applying for a home equity loan over other products because the use of collateral (the home) results in lower rates and improved terms. The home equity loan remains a preferred choice for homeowners who don’t want to tap into cash reserves, retirement accounts or lack the immediate cash to accomplish life goals.
Best Ways to Use a Home Equity Loan
Along with low interest rates and favorable terms, borrowers like the flexible use opportunities associated with a home equity loan. Similar to an auto loan or personal loan, a home equity loan comes with few strings attached. Qualified homeowners receive a lump sum amount at a fixed interest rate that they can put to wide-reaching uses. That’s largely because borrowers are effectively guaranteeing the product with equity and their house as collateral.
Home equity loan borrowers can deploy these funds to achieve financial goals or make quality of life enhancements. While there is no wrong way to spend the lump sum, these rank among the more prevalent uses.
1. Home Improvements
Using a home equity loan to make upgrades ranks among the most prevalent strategies. Home improvements such as new kitchens and expansive bathrooms improve quality of life and typically result in increased property value.
2. Home Repairs
Although homeowners insurance remains a standard element of owning a property, sometimes property damage is not covered. When you need the money for a new roof or restoration service, a home equity loan may be your best option.
3. Debt Consolidation
People with multiple high-interest credit cards or unsecured loans improve their financial portfolios through consolidation. Using a home equity loan’s lower interest rate to pay off debts and bring everything into one convenient monthly installment saves money. It can also help improve your FICO score.
Low-interest loan products are viable options for educational expenses. Families may find that a home equity loan offers more favorable terms than today’s student loans.
5. Paying for Medical Bills
In many ways, equity is a lot like a rainy day fund. When unanticipated medical procedures are needed, homeowners can secure a home equity loan to ensure they or their loved ones get the medical treatment and care they deserve.
6. Funding Investments
It’s not uncommon for financial opportunities to present themselves when you lack the cash on hand to benefit. Because a home equity loan allows borrowers significant flexibility, you can use the lump sum to turn a tidy profit.
7. Starting a Business
Perhaps the single greatest challenge entrepreneurs face is getting the funds to launch a business. If you feel confident a venture will succeed, a home equity loan can help you become a business owner.
8. Emergency Fund
People often talk about expecting the unexpected. But when an illness, injury, loss of a job, or another setback occurs, community members can find themselves in dire financial straits. A home equity loan can help you, and your loved ones get through difficult times.
Taking a once-in-a-lifetime family vacation provides lasting memories. Although no price can be placed on these experiences, a home equity loan can make a dream vacation a reality.
The cost of getting married has become prohibitive for some couples. But families who have built up years of equity do not necessarily have to cut corners. By establishing a wedding budget, couples and parents can borrow the funds to start married life on the right foot.
Where to Apply for a Home Equity Loan
If you have equity in your home and you are looking for the most affordable way to borrow money, apply for a home equity loan at Finex Credit Union. Fixed rate home equity loans can offer you the money you need today, or a security blanket for the future.
If you are unsure if you have enough equity in your home or if applying for a home equity loan is the right solution for your individual financial situation, please contact us today, we are happy to help.