Things You Should And Shouldn't Use Your Home Equity Loan For
Many people get home equity loans to help pay for certain expenses that they feel like they cannot do without. Some things are a good investment when it comes to home equity loans, but other things should be avoided. Here are some things you should and shouldn't use your home equity loan for.
1. You Should Use Home Equity To Invest
If the market is really good and you can get a good return on your investment, it might be worth taking out a small home equity loan to invest your money. If you choose to do this, you need to be prudent about how much you are taking out. Start small and use the money in a safe and low risk investment to see the return. After some time you might notice that the return isn't what you expected it would be, and it would be better to put the money back in the house. However, for many people, investing home equity loans is a good option.
2. You Shouldn't Use Home Equity Loans To Pay Off Unsecured Debt
Your home is a secured debt. This means that, if you have to file bankruptcy, this debt is considered safer than other types of debts such as credit cards, auto loans and so forth. Taking equity from your house to pay off credit card loans could cause problems if you end up having to file for bankruptcy. For this reason, avoid using home equity for unsecured debt, and instead talk to a financial planner about balance transfers and other ways to pay off consumer debt.
3. You Should Use Home Equity To Remodel
Putting your home equity loan back into your house for renovations is a great idea. If you can improve the value of your home by taking out a small loan against your house, you could be in great shape. When you remodel the house, make sure that all of the renovations will actually improve the value of the home, should you choose to sell. This will seriously impact whether the investment was a good investment or if it should have been avoided.
Some good improvements include increasing square footage, updating the kitchen, adding a pool, raising the ceilings and so forth.
By understanding what you should and shouldn't use your home equity loan for you, can decide if getting a loan is the right financial decision for you. For more information, contact a loan officer at New Horizons Credit Union.