Best Reasons to Take Out Home Equity Loans

What are Home Equity Loans?

In a home equity loan, the bank lends the homeowner money based on the amount of money the homeowner can put up as collateral. The more home equity someone has, the bigger the home equity loan. Homeowners are free to use it in any way they want. Banks suggest to customers that home equity loans can pay off credit cards, pay for cruise vacations or finance the purchase of a vehicle. To be practical, there are only a handful of things people should really want to pay for with a home equity loan, but it could be used the same way people use a credit card.

Best Uses of a Home Equity Loan

Depending on how one uses the home equity loan, it can be a fantastic way to address money concerns. It can turn bad debt like credit card debt into good debt. It can be used to add significantly to the value of a home with a home improvement project. People can use the money to invest in themselves with a tuition payment at a school. It can also finance major purchases like a new car.

Debt Consolidation

A credit card is potentially a form of bad credit. Yet today almost everybody has a credit card in their wallet. The credit card is a convenient, easy-to-use financial tool that allows people to purchase just about anything when they don’t have the money to pay for it with one caveat. That caveat is to pay it back in a 30-day billing cycle. If they don’t, the banks may hit these credit card owners with big interest-rate bills and any fees they believe are owed. Those who look closely at the fine print on their credit cards may discover that they have signed away a considerable amount of leverage just to have a square plastic card in their wallet!

Other forms of bad debt include payday loans and automobile loans. Payday loans are so abusive of consumers that in many states they’re highly regulated and may even be illegal. Payday loans are loans taken against a paycheck, and the balance is due on payday. Refusal to pay means that the interest rate, already astronomical to begin with, goes through the roof. A $300 loan becomes a $500 loan in a short month. This is a debt to get off the books as soon as possible.

Automobile loans are not great credit because of the quick depreciation cars suffer over their lifetimes. A car depreciates 30% in the first three years of operation. And the interest in auto loans is often front-loaded. People run the risk of owing more money on the car than it’s worth. Even though auto loans are collateralized, the interest rate can be tough. Again, this is a debt to get off the books.

The home equity loan can help people take all these high-interest rate loan products off the bad credit side of their ledger and put them on the good credit side. Individuals can pay off the entire amount on their credit cards, get rid of payday loans, and maybe even outright buy automobiles with home equity loans!

Home Improvement

Home improvement projects can get pricey. A home improvement project can also increase the value of a home if the owner can argue that the home’s square footage has increased after it’s complete. Just about any home improvement project above ground can improve the value of a house. Owners who put an addition on the back of the house, the home’s value increases. A bedroom above the attached garage? The value of the house goes up. The list goes on.

That doesn’t mean homeowners have to add value to the home to justify using a home equity loan to improve their properties. They can use the home equity money to do any improvements, like installing a new hot water heater or furnace. It doesn’t increase the value necessarily, but new fixtures are strong selling points for putting houses on the market in the future.

Paying for School

Education might be the best investment someone could ever make, and many people borrow tens of thousands of dollars to improve their lives this way. Education can increase personal income by a significant factor, so the return on investment is high. If the student loan isn’t a needs-based loan, and if the interest rate beats that of an educational loan, a home equity loan might be a better way to finance an education.

Financing Major Purchases

Those with good money-managing skills can use a home equity loan to make major purchases. With this type of loan, individuals can buy a motorcycle if the urge hits. Other major purchases made possible with this type of loan include a car, a truck, a motor home, a travel trailer, and an airplane. Those with an automobile loan—and the loan amount is greater than the value of the car—can pay it off with home equity loan funds. They’ll have it paid off, and maybe can drive it for a few more years and realize that kind of equity.

Final Thoughts

It’s good to know the difference between good and bad credit. A home equity loan is a good credit tool, and it can solve a lot of problems!


Celeb Facts - Mega Rich Celebrities Keep Their Money In These Banks

  1. You must maintain at least $100,000 in combined investment and deposit balances to qualify for the HSBC Premier Checking account. The account includes the ability to earn bonuses of up to $2,000 each year when you refer someone for a new HSBC account. Personalized financial support and discounts on loan products are additional perks.
  2. The Citigold Private Client Account Package is an all-in-one banking product. The package includes access to Citibank checking, savings, and money market accounts. Wealthy account-holders also receive personalized guidance from a wealth professional. Citibank waves many typical banking service fees for members.
  3. Private Bank is the private banking division of Bank of America. It targets individuals with a minimum of $3 million in liquid assets. There are no monthly maintenance fees. Members are eligible to enroll in the Preferred Rewards program, which offers its members exclusive benefits.
  4. The Morgan Stanley Active Assets Account works like your typical account with check-writing and bill payment services. In addition, it offers opportunities to execute trades with margin privileges. Active Assets Institutional Money Trusts are another feature when you make a minimum $5 million investment.
  5. The BNY Mellon Client Access account works as a brokerage account with the features of a checking account. Customers can place trade orders for stocks and mutual funds, pay bills, and watch over their general day-to-day finances. BNY Mellon's wealth management products are available for those with $2 million-plus investable assets.

DISCLAIMER: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the site owner or any brands and companies mentioned here. Any content provided by our bloggers or authors are of their opinion, and are not intended to malign any religion, ethnic group, club, organization, company, individual or anyone or anything. This article is purely for reference purposes and does not constitute professional advice and may not be reflective of the best choice for your unique situation. This site strives to provide as much accurate information as possible; however, sometimes products, prices, and other details are subject to change. Therefore, this site does not verify for the accuracy of the information presented in this article. This site does not assume any liability for any sort of damages arising from your use of this site and any third party content and services.