Ways to Use your Home Equity Wisely

If you are thinking about using home equity for something, consider the consequences first. Your home equity is one of your most valuable assets as a homeowner. You could do many different things with your home equity, but not all of them are a wise investment. Once you use your home equity it may take several years to get it back. Therefore, you should strive to only do things that are considered wise with your home equity. Here are a few ways that you could wisely use your home equity. 

Home Upgrades

One of the best things that you could possibly do with your home equity funds is to improve your home. When you use the money from the equity of your home to actually improve the home, you will be creating even more equity. When you do this, make sure that you are using the majority of the funds for projects that add value. Buying new curtains is not going to increase the value of your house. Adding a room onto the house will add value. 

When you are deciding what to do to your house, keep an eye out for permanent changes to the structure. When you put in hardwood flooring, update the cabinets, and add on rooms, you are improving the house as a whole. When you get new carpet or drapes, you are just making it look nicer. While other things can make your house more enjoyable while you live in it, they may not actually add value. Therefore, try to put your focus on projects that actually add value. 

Consolidate Debt

Another wise use of your home equity funds is to consolidate debt. Many homeowners also have several credit cards that are maxed out. When you are paying credit card interest every month, you are paying a lot of money that you do not need to pay. If you have home equity just sitting there, you might as well pay off your credit cards and start paying cheaper interest. The interest rate on a home equity loan is always going to be much less than credit card interest. Therefore, you should make every effort to get your high interest accounts into a home equity loan.

In addition to saving money overall on interest, this will consolidate all of your payments into one easy payment. Anytime you can make one payment instead of four or five, you will be better off. When you do this, your single payment will often be smaller than the sum of all of the payments that you were making. 

Invest

Another good use of your home equity funds is to invest the money. You could buy a rental property with your equity, start a business, or invest in a number of other things. The important thing to remember is that you need to make a higher return on your money than what you pay for the loan. Otherwise, you will not come out ahead. 

Use caution

The most important thing to remember when you use your equity is to use it with caution. When you use the equity in your home, you are essentially reducing your net worth. Be cautious and certain that the investments are worth the risk.

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