Sometimes the things we want, or need, in life come with a big price tag. A home equity loan* (HEL) could help you turn a portion of your home’s equity into cash so that you don’t have to wipe out your savings account for your next big life event. You can use the cash from a home equity loan any way you want, like towards a new roof, pay for education expenses, consolidate your high-interest debt, or add that in-ground pool you’ve always wanted. The funds from a home equity loan are yours to use any way you want.
What is a home equity loan?
A home equity loan, also called a second mortgage, is a mortgage option that uses your home as collateral to access a portion of your home’s equity. The funds from a home equity loan are paid out in one lump sum and you repay the loan in monthly installments. This is not the same thing as a home equity line of credit (HELOC), which is a revolving loan that allows a borrower to withdraw funds as they need them.
How does a home equity loan work?
When you began repaying your mortgage, you started on the road to building home equity. And, since then, chances are your home’s value has increased. When your home is worth more than what you owe on your mortgage, you have earned equity that you could use to help you reach your financial or personal goals. A home equity loan works by using your house as collateral to access a portion of your home’s equity.
Common uses for a home equity loan
One of the benefits of utilizing a home equity loan to access some of your home’s equity is that you get to use the lump sum payout any way you want. If you have home improvements on your mind or want to go back to school or are still dreaming up how you want to use it, your options are virtually limitless. Let’s go over some common uses for a home equity loan payout.
Financing home renovations
Whatever renovation projects you’d like to do to your home, a home equity loan can help with the financing. If you need to replace your roof, install a new HVAC system, or have some unexpected repairs crop up, a home equity loan could cover the costs. You can also use funds from your home equity loan to pay for those dream additions you’ve been wanting like an in-ground pool, a kitchen or bathroom remodel, and more.
Debt consolidation
Sometimes, you might feel like you need a new solution to manage your debt. You could use the cash from your home equity loan to manage your high-interest debt. Since home equity loans historically have a lower interest rate than credit cards, you may also be able to save on the amount of interest you are paying over time.
Paying for educational expenses
Many people want to pursue their dreams of getting a degree. Whether you want to go back to school or pay for your kid’s education, a home equity loan can help you free up the funds to make it happen. You may be able to cover educational related expenses such as tuition, board, supplies, certification, and more.
Covering unexpected expenses
Life happens, and sometimes unexpected expenses can pop up that might throw you for a loop. And, when it does, stressing out over how to pay for them doesn’t help the situation. You may be able to ease some of your worries before unexpected life events even happen by using a home equity loan to set aside some cash for emergencies.
When in doubt of how, or when, to use a home equity loan, know that you can always reach out to a trusted mortgage lender to walk you through the process. Contact us today and one of our loan officers can run some scenarios to help you understand your options.
*All credit decisions for brokered products will be made by a third party. Restrictions and limitations apply.
