The following article was publish on blog.figure.com on 7/22/19
A home equity line is a powerful financial tool. If you've worked hard to pay down your
mortgage, you can use your home equity to fund a number of projects. But use your home equity funds wisely. Using this loan to buy a fancy car or fund a lavish vacation isn't a great investment since you'll be paying interest on your purchase long after the car is gone or the travel memories have faded. In addition, you could be putting your home at risk for short-lived luxuries if you run into financial trouble down the road. The smarter way to use a home equity line is for investments in your future. Take a look at these smart ways to get the most out of your home equity line funds.
1. Make smart home improvements
One of the best ways to use a home equity line is to fund improvements to your house and property. Use the money to pay for necessary repairs like a roof replacement or for important upgrades like bringing your electrical system up to code. You may also consider building an addition onto your house or making improvements to the interior or exterior that will make your home more comfortable. Choose projects that will increase the resale value of your home, and you'll be paid back when you sell in the future. Smart choices are also ones that increase your curb appeal when you sell, such as fresh paint or new siding.
Best of all, there are tax advantages to using a home equity line for home improvement projects. Despite changes to tax laws, home equity benefits are still available.
2. Consolidate high-interest debt
The average interest rate on a new credit card is over 19%. If you are carrying a balance on one or more credit cards or have a zero-interest introductory offer that is ending, using a home equity line to pay them off could save you thousands of dollars in interest and, in turn, help you pay off your debt much faster. Current home equity line rates are less than half of what a credit card company typically charges, so consider using a home equity line to consolidate your debt.
3. Supplement your emergency fund
A home equity line makes an ideal emergency fund, especially if you're struggling to save the three to six months of living expenses that experts recommend keeping for a cushion. Knowing that you can tap into your home as a source of income in case of emergencies can provide peace of mind. If you unexpectedly have to replace your furnace midwinter or get laid off, you'll be able to weather the storm.
4. Make college more affordable
The average college graduate now carries $37,172 in student loan debt — a figure that can keep them from moving out of their parents' homes or pursuing a higher degree. A college education is still a good investment, though, so you may wish to tap into a home equity line to pay for your child's tuition or living expenses. This payment method can help you avoid high-interest private loans marketed to parents. It's a great option if your financial aid package doesn't include enough subsidized student loans to cover all your costs.
5. Care for an elderly parent
If you have aging parents, a home equity line can help you cover the cost of a nursing home or other long-term care option when they can no longer live on their own. At last tally, nursing home care costs $255 per day. It can be difficult to budget for this type of expense if you're faced with a sudden loss of mobility or other health crisis. A home equity line can fund the down payment on a nursing home at a lower interest rate than available on other types of loans.
6. Move into a new home on your own schedule
Whether you want to downsize or need extra space for a growing family, moving is nerve-wracking. This is especially true if you are trying to time selling your old house to coincide with buying the new one. Using a home equity line for a down payment gives you the flexibility to pay for your dream home without needing thousands in cash on hand, and it allows you to move into your new house while you wait for your old one to sell. This use of a home equity line is best for those who can afford two mortgage payments at once for a few months. This home equity line will be paid in full at the close or sale of your old house.
The bottom line
A home equity line allows you to tap into the investment you've made in your home, making it a great tool for people who may not have a lot of income but who have been diligent about keeping up with their mortgage payments. While you'll still pay interest on the money you borrow against your house, low-interest rates make it a valuable option for funding investments in your future.
