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4 Smart Ways to Use a Home Equity Loan

As home prices continue to rise, homeowners are sitting on a growing amount of equity in their homes and an increasing source for extra cash. While tapping into that cash to fund an expensive lifestyle might be tempting, using your home’s equity should be done cautiously and with a specific reason in mind. Continue reading for four of the smart ways that you can safely use a home equity loan to improve your financial future.

Home improvements

Home renovations are one of the most frequent uses of home equity loans and are also typically one of the smartest options. Home improvements are a great decision because if done right, they raise your home’s value and make for a great investment. If you decide to use a home equity loan for this, focus on improvements that will increase the home’s value but also will improve its functionality or make it a more enjoyable living space for you.

If you’re planning on selling your home soon, make sure that you are spending on upgrades that shoppers are looking for so you can make back as much of your investment as possible. It’s best to focus on upgrades such as fresh paint, new flooring, or bathroom and kitchen updates, which are features that buyers frequently look for.

Consolidate high-interest debt

Another smart way to use a home equity loan is to consolidate debt. If you are currently making payments on multiple high-interest credit cards or loans, taking out one home equity loan to consolidate these expenses offers numerous benefits. One benefit is that by consolidating your debt into one payment, you have the potential to save thousands of dollars on interest. Consolidating with a home equity loan also gives you the freedom of making just one payment per month, rather than coordinating multiple monthly payments. Lastly, home equity loans have a designated loan term, so you will know exactly when the debt will end, in comparison to revolving credit card debt.

Investment properties

Using a home equity loan to fund an investment property is another smart option if done properly. If you have built enough equity in your home you may be able to use a loan to pay for a downpayment or even for the full cost of an investment property. However, when purchasing a second property, you should have the intent of receiving a return on your investment by either renting or reselling it.  While it might be tempting to use a home equity loan to purchase a vacation home for your family, avoid spending it on something that will not offer the opportunity to improve your financial future.

Emergency expenses

If you are faced with expenses from an emergency situation, tapping into your home’s equity might be the right solution for you. Whether you are faced with a medical emergency or job loss, paying for your expenses with a home equity loan is a smart option, especially if you do not have an emergency savings fund prepared. Even though you will not be using the loan to better your financial future, when life hands you an unexpected situation, taking advantage of your home’s equity can provide you with the necessary funds.

Now that you know the smart ways to use a home equity loan, if it’s the right choice for you, get started with CTFCU. From now until the end of March, CTFCU’s home equity loan promotion is offering rates as low as 4.99% with terms at 10 years. Visit our promotions page or stop by our office to learn more.

The Dos and Don’ts of Home Equity Loans

Today, American homeowners have $5.5 trillion in home equity available, up more than $3 trillion since 2012. While Americans chose to tap into their home’s equity for a variety of reasons, there are certain situations where it should be avoided.  Continue reading to learn more about the dos and don’ts of using a home equity loan.

Do: Make home improvements

One of the best uses for a home equity loan is to fund home improvements that will increase your home’s overall value.  Renovation projects such as building an addition onto your home, updating your kitchen or putting on a new roof increase your home’s worth and offer a great return on your investment.

Don’t: Take Out More Than You Need

Even if you have the equity available, make sure to take out a home equity loan only for the amount that you need. What you take out should be used for a specific reason, rather than used as additional cash for non-essential items. When you increase your loan amount for some extra spending money, you’ll end up paying much more over time on the cost of interest. You also run the risk of losing equity in your home if the housing market declines.

Do: Consolidate your debt

Another great way to use your home equity loan is to consolidate debt from multiple high-interest credit cards. Restructuring your debt from many cards into one low-interest loan has the potential to save you thousands of dollars on interest. It also simplifies your monthly payments to help make life easier for you. Just don’t forget to be disciplined with repaying the home equity loan so you don’t end up back in a cycle of dangerous debt.

Don’t: Purchase luxury items

If you plan to take out a home equity loan, avoid using it to fund luxury items such as expensive cars, boats, vacations or electronics. Borrowing to pay for expensive, non-essential items is not a safe choice. Since your home is used as collateral for a home equity loan, if your property value declines or if you become unable to repay the loan, you put your house at risk. Although it’s tempting, remember that vacations or expensive cars are not worth the risk of losing your home.

Do: Cover unexpected emergencies

When unexpected emergencies occur, a home equity loan is a good option for covering the expenses. If you don’t already have an emergency savings account prepared, a home equity loan can cover the costs of an unexpected situation that you were not financially prepared for. These types of situations include a medical emergency, job loss or extreme weather event.

Don’t: Use it for paying monthly bills

Lastly, avoid using a home equity loan to cover monthly expenses such as your car or phone payments. Since monthly bills do not offer any return on your investment, it’s a smart choice to avoid using a loan to cover them. Instead, these payments should be factored into your monthly budget. Remember, treating your home like it is an ATM is a dangerous decision.

Now that you know more about the dos and don’ts of home equity loans, if taking out a home equity loan is the right choice for you, CTFCU is here to help. From now until March 31st, we are offering home equity loans with rates as low as 4.99% and terms at 10 years. Visit our home equity loan promotion page to learn more or visit the branch to get started!

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