If you are fortunate to have paid down your mortgage enough or even completely paid it off and your property value is worth more than you owe on it, you have equity on your home. This can be a tremendous advantage if you have an unexpected financial need, because this means you can take out a home equity line of credit, also known in the industry as a HELOC. Here are three situations where people commonly use a home equity line of credit.
Use The Equity Line Of Credit For Home Improvements
If you want to remodel or renovate your home, a HELOC is the perfect answer. Maybe you want to add outdoor living space by adding a sunroom or a deck and outdoor kitchen area. It could be that your kitchen or bathroom is outdated and you want to bring it into the 21st century. Building a new garage is another is another great upgrade to consider. These are the kind of renovations that will only add more value to your home, which in turn adds more equity. It will also make your home more comfortable. Replacing the furnace, roof, or siding are other good bets, although your return on investment won't be as large as a kitchen or bathroom renovations as these kinds of purchases are considered routine maintenance rather than upgrades. But if you don't have the cash flow to pay for a replacement roof, a home equity line of credit is a convenient option. This is especially true in an emergency.
If you are planning on selling your home in the near future but it has an outdated kitchen with old appliances and fixtures, you may struggle to get any offers. Many people want to buy a home that is move-in ready. You can use your home equity line of credit to renovate needed areas before putting it on the market and make it more desirable to buyers.
Use The Equity Line Of Credit For A Student Loan
Depending on the interest rates, it may be cheaper for you to finance your child's education with a home equity line of credit than it would be to go the conventional route. A HELOC may also make sense to use for investing as well. For example, if you can borrow from your home for 4 percent but have the opportunity to invest with an 8 percent payout, this risky move might be worth it. Be sure to discuss this with your financial advisor first to make sure it's the best option for you, though; you don't want to potentially put your home at risk.
Use The Equity Line Of Credit For A Vacation
If you are retired and have a lot of equity in your home, now is the time to take that trip of a lifetime you were always too busy for before. If you have raised your family and have the time, enjoy it while you can. Take that cruise around the world or tour Europe for a month. Life is too short to spend sitting in your easy chair, looking out the window, watching the world go by.