Use Your Home’s Equity to Get Cash
Your home is more than just a place to live — it’s a valuable financial asset. As you pay down your mortgage and property values increase, you build equity, which you can tap into when needed. Fixed Term Home Equity Loans and Home Equity Lines of Credit (HELOCs) are powerful tools to help you access that equity for important expenses.
But what are the smartest ways to use your home’s equity? Let’s look at five strategic uses for home equity loans and which type might be right for each situation.
1. Home Improvements
One of the most common uses for a home equity loan is investing in your home through upgrades and renovations. Whether you’re remodeling your kitchen, adding a bathroom, or upgrading your outdoor space, using your equity to finance these projects can help boost your home’s value and improve your quality of life.
HELOC: A HELOC is an excellent fit for ongoing or multi-phase projects where costs might fluctuate over time. You can borrow what you need when needed and only pay interest on the amount you’ve used.
Fixed Term Loan: If you know exactly how much your renovation will cost, a Fixed Term Loan offers the predictability of a lump sum and fixed monthly payments, making it easier to budget for a major upgrade.
2. Debt Consolidation
Managing multiple high-interest debts can be overwhelming. Consolidating your debt into a single loan with a lower interest rate can simplify your payments and potentially save money on interest. Home equity loans often offer lower interest rates than credit cards or personal loans, making them an attractive option for debt consolidation.
Fixed Term Loan: A Fixed Term Home Equity Loan is ideal for debt consolidation. It provides a lump sum upfront to pay off your existing debts, allowing you to roll everything into one loan with a predictable payment schedule and lower interest rates.
HELOC: While a HELOC could also be used for debt consolidation, its flexibility might not be as necessary here. A lump sum loan with fixed payments is often better suited for this purpose.
3. Emergency Expenses
Life is unpredictable, and sometimes unexpected expenses — like medical bills, home repairs, or job loss — can strain your budget. In these situations, having access to your home’s equity can be a financial lifesaver.
HELOC: A HELOC provides flexible access to funds for emergencies where the total cost is unclear. You can draw money as needed and only pay interest on what you borrow, making it a good option when expenses are spread out over time.
Fixed Term Loan: If you have a large, one-time emergency expense (like replacing a broken HVAC system or paying for a medical procedure), a Fixed Term Loan can give you the upfront funds to handle the crisis while offering the predictability of set monthly payments.
4. Educational Expenses
Whether you’re paying for a child’s college tuition or pursuing additional education for yourself, tapping into your home’s equity can be a smart way to cover educational costs. Since education costs can vary from year to year, flexibility in borrowing can be important.
HELOC: A HELOC is ideal for ongoing educational expenses, like annual tuition, room, and board. You can draw on the line of credit as needed each semester, making it a flexible way to finance education over time.
Fixed Term Loan: If you’re financing a single, large education expense (such as paying for an entire year of tuition upfront), a Fixed Term Loan might be a better fit, providing a lump sum with fixed monthly payments.
5. Major Life Events
Are you planning a wedding, a big family reunion, or a dream vacation? Home equity loans offer a way to fund significant, once-in-a-lifetime events without the high interest rates of credit cards or personal loans.
Fixed-Term Loan: For big-ticket events with a set budget, a Fixed-Term Loan is a great option. You receive a lump sum upfront and can manage the repayment through predictable monthly payments.
HELOC: For events where costs might increase or decrease as you go, a HELOC allows you to borrow only what you need. This is helpful when dealing with fluctuating vendor costs or unexpected expenses during event planning.
Which Option Is Right for You?
Choosing between a HELOC and a Fixed Term Home Equity Loan depends on your financial needs and how you plan to use the funds. Here’s a quick summary:
- Choose a HELOC if you need ongoing access to funds, have variable expenses, or want flexibility in borrowing.
- Choose a Fixed Term Loan if you have a set amount in mind and prefer the stability of fixed monthly payments and a consistent interest rate.
Still not sure which option is right for you? People Driven Credit Union is here to help! Our expert team is standing by to answer your questions and guide you through the process. Learn more about Home Equity Loans or explore HELOC options.
