8 Ways to Use Home Equity to Fund Your Dreams
While rising home values or a shrinking principal mortgage balance can make you feel wealthier, most homeowners don't see any benefit of these until they sell their home. Some homeowners, though, opt to tap into their home equity early with a Home Equity Line of Credit, or HELOC. Doing so means using your home's value to fund any number of goals or dreams — and often with better borrowing terms than you'd find elsewhere.
In fact, whereas the interest rate on credit cards often hovers in the double-digits, HELOCs almost always come with favorable interest rates that help homeowners save money. And, unlike credit cards, interest paid may be tax deductible, lowering consumers’ borrowing cost further. Homeowners should consult with a tax advisor to learn more about tax deductibility of interest.
It’s important to remember that since you’re using your home as collateral for a HELOC, you’ll want to evaluate your HELOC use wisely.
Here are 8 smart ways to put your HELOC to work.
1. Remodel or add on to your home.
The National Association of Home Builders (NAHB) reports that whole-house remodels and additions are on the uptick in 2016. If you need more space, or your house is feeling dated, consider an interior refresh, a larger living area, or a finished basement.
2. Add that much-needed bathroom.
The NAHB reports that bathroom additions are up 7% in 2016. According to the National Association of Realtors, bathroom remodels resulted in a 70% average return on investment in 2015. That's slightly more than homeowners should expect from a full-scale kitchen remodel.
3. Upgrade to sell.
If you dream of moving to a larger house or a different neighborhood, but your existing property desperately needs updates, using a HELOC to make your home current may help you sell faster.
4. Pay for college.
Many kids reach college age around the time their parents have built considerable equity in their homes. Access that cash to pay for school or pay down student loans.
5. Pay off debt.
Few dreams are more common than a debt-free future. If you're struggling with high-interest consumer debt, a HELOC can save you from ballooning interest and a lifetime of monthly payments.
6. Buy a business.
Whether you have yearned to buy out your business partner, invest in a franchise, or start your own company, a HELOC could provide the funds to do it.
7. Take that dream trip.
If a once-in-a-lifetime trip is on your horizon, a HELOC can make that dream a reality with access to cash at a low interest rate.
8. Fund your dream wedding.
If you own your home before getting married, a HELOC is a smart way to borrow for your wedding with a lower rate than you'll find elsewhere.
If you have goals that require more cash than you have on hand, a HELOC is a smart way to help you make them a reality.