Buying and owning a home is a major milestone in any person’s or family’s life. Once you purchase a home, you accrue home equity or the amount of money that your home is worth minus the amount of money you have already paid for it (i.e., down payments, mortgage payments). Whatever stage of life you are in, it is important to understand the ins and outs of your home equity and how you can best take advantage of it. The following tips can help you make the most out of your home equity and allow you to increase the value of your home.
Home Improvements
With stay-at-home orders and state-wide lockdowns, you’ve probably noticed your friends renovating their homes. Making improvements to your home can cost quite a bit of money, and in times like these the cost of doing home improvements might be a deterrent to embarking on any home improvement projects. If this is the case, you can use your home equity in the form of a home equity loan to finance home improvements. For example, if you plan on installing solar panels, a home equity loan will help you cover the initial costs of solar panels.
Consolidate Debt
If getting a loan sounds scary to you, fear no more because loans and credit backed by your home equity allow you to get a lower interest rate than credit cards and personal loans. Unlike credit cards or personal loans that are contingent on your credit history, a home equity loan is based on how much your home is worth and can be a good way to consolidate any debts you may have. Many people use their home equity to pay off high car payments and student/personal debt.
Be Wise
While home equity loans can be helpful in consolidating debts, it’s important to use them wisely so as not to put your home in financial jeopardy. Make sure to discuss your financial needs and capabilities with a spouse or your partner to see if using your home equity is right for your current needs. Understand the risks and the benefits. If you are unable to pay it back within the allotted time, your home might be at high risk of being foreclosed. Always consult with a financial advisor before making any major decisions.
Your home can serve you beyond just being a roof over your head. Your home can serve you financially when you understand how to best utilize your home equity. Through proper management, your home can turn from a liability into an asset.
Here at Kelley Financial Planning, we want to help you make the best financial decisions for your future. Contact us to schedule an appointment!
