To many people, the idea of taking out a loan can be a scary one. While some may fear being trapped inside a “cycle of debt” of making payments, if done strategically, a home equity loan may, in fact, prove to be financially advantageous. However, this does not mean that a loan of any sorts should be your go-to option in situations where you’re short on cash.
In all truthfulness, the success and outcome of any loan is almost entirely dependent on the individual taking it out, and subsequently, how they choose to manage it. A fundamental financial rule of thumb is to avoid borrowing funds when possible, and a home equity loan, among alternatives, typically may not be your first option when seeking out a loan.
Home equity loans allow you to borrow against the equity of your house. Consumers often choose them due to their fixed and clear payment dates, as well as their lower interest rates. But before you decide to apply for the loan, there are a number of considerations you should make to ensure you optimize and take full advantage of your home equity loan.
Using A Home Equity Loan To Your Advantage
Home Renovations
Home improvements may be one of the greatest, if not the best, ways to take full advantage of your home equity loan. If you haven’t already read our past article on how home renovations can be a profitable endeavour, be sure to check that out! In short, home renovations are an amazing way to enhance the overall valuation of your house.
It’s important to remember that with an outstanding home equity loan, the return on investment from home renovations would not be reflected in your home’s valuation instantaneously; home improvements would, in ways, act as a long-term gain. This is because the capital used for these renovations comes from the home equity loan itself, which is borrowed from the equity against your house, lowering the home’s total valuation. In short, you would have to completely retire your existing home equity loan before the value of your house would increase.
Home Expansions
Similar to general home improvements, an alternative option is to utilize your home equity loan to expand on your home entirely! This could be in the form of building an additional room, or even the full scale addition of a lane-way house! If you’re looking to fund such a project without having to heavily dip into your personal savings, a home equity loan may be perfect for you.
If you’re really up for it, a larger endeavour may even be to utilize the loan for a down-payment on additional property for future development, provided you know you’ll have the necessary capital for the entire project. This is another great way to take advantage of a home equity loan.
Consolidating Debt
Using your home equity loan to consolidate (or “pay off”) other existing debt that you may have is an excellent choice and could result in substantial savings over time! However, to fully optimize such a decision, it is important to ensure that the debt you are choosing to consolidate has a higher interest rate than that of your home equity loan. For example, using it to pay off a personal loan with a much higher interest rate.
If you have considered all the reasons for getting a home equity loan and decide that it is for you, our team at Leap Financial would love to help! Submit an application today or contact one of our specialists and get approved within 24 hours.