When Leveraging Home Equity Makes Financial Sense

Posted by Gary Hall on Dec 29, 2017 1:34:00 PM
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Leveraging home equity makes financial sense, when you do it for the right reasons. Using the equity in your home with a home equity loan or home equity line of credit can be a financial gain for you.  To determine a smart use of a home equity line of credit or home equity loan, do your research so your focus is on responsible borrowing.

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Here are 6 Ways to Leverage Your Home Equity:

  1. Use Equity to Renovate

 Home improvement is the biggest use of home equity loans and home equity lines of credit. The upside is clear. If you bought a home you don’t completely love and want to remodel, whether that means an addition, cosmetic changes, kitchen and bathroom updates, finishing a basement or building a garage, as you build equity you can use it to make upgrades. The opportunity is especially attractive if your home has risen in value so you have a larger equity cushion. Leveraging home equity makes financial sense when you can do it at a low rate to improve your home and make it more comfortable.

  1. Use Equity for Durables

 Second on the list are major purchases, which these days are more likely to be vehicles, appliances and other home furnishings.  Avoid using your home equity to pay for lavish weddings or exotic vacations unless this is well-planned. A good rule of thumb: use home equity for what you need not what you want.

  1. Use Equity to Invest

 Home equity can be used to invest in property and for a higher return on an investment as long as interest rates remain low. Do the math. Be careful, this is a risky undertaking.

  1. Use Equity to Start a Business

 Home equity can help launch your business, and provide a good source of funds for startup. However, this brings risk so get professional advice to ensure that your business plan is sound and the investment of using your home equity has a good chance for a return.

  1. Use Equity as A Student Loan

 With college costs going through the roof, it may be a smart use of a home equity line of credit. A home equity line of credit can be an attractive way to finance a child’s education. Your interest rate might be lower and the maximum loan amount higher than some other types of education financing. But this strategy isn’t risk-free either. As a parent, you may have to delay retirement, sometimes for many years, because of this huge debt.

  1. Use Equity as Retirement Income

 Some people during their retirement years believe leveraging home equity makes financial sense. Using a HELOC to meet their current income needs in years when their investment returns aren’t sufficient for that purpose could be a smart use of home equity line of credit.  However, there’s a risk because eventually you will have to make payments on the HELOC.  If investment returns don’t pick up, a retiree using this approach may need to cut back elsewhere or borrow more against the line of credit, which can start a dangerous downward spiral.

At ChoiceOne Bank we can advise you when leveraging home equity makes financial sense and guide you to make a smart use of your home’s equity.

Call our Customer Service Center today at 888.775.6687 or visit any of our convenient branch locations to speak to a loan officer near you.

Find a convenient location here: https://www.choiceone.com/contact-and-locations/.

You can also apply online at https://www.choiceone.com/personal/borrowing/

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*Loans are subject to credit review and approval. Home Equity Lines of Credit are available for well qualified applicants for loans of $5,000 or greater. No annual fee for first year, then $50 per year. Processing fee of $199 may be applicable. Rate not to exceed 18.00%. Consult a tax advisor regarding the deductibility of interest.

Topics: HELOC