If you are like most people, your biggest investment is your house. Between the down payment that you put down and the equity that you have built into your house, you have a good financial situation in your house. This is why when you need to free up cash, you might think of a home equity loan. In some cases, this is a great investment, and in other cases, you shouldn't do it. Here are some questions people ask about home equity:
I Want To Remodel My House, Should I Take Out A Home Equity Loan?
Remodeling is a great reason to take out home equity. When you remodel your house you improve the value of the home. So that the money you take out in the home equity, goes back into the house, and back into making your house your investment. The hope is that when you sell your home, you will make more money off the house so that the money that you made, because of the remodel, will go into paying off the home equity loan. Thus, it is a good deal for your equity.
I Have Lots Of Debt, Should I Take Out Home Equity To Pay It Off?
It is generally not advised to take out a home equity loan to pay off consumer debts, although there are some situations where it would work. First of all, most consumer debts have high interest and a home equity line of credit has a much lower interest rate. Thus, it may seem like a good idea. However, there are other loans that you can get, many through credit units, that allow you to consolidate the loans with a higher interest rate, without ruining the equity in your home. If it is for a small amount, you might be ok. But be careful about using your home equity for unsecured debts. Your home is a secure debt meaning that if you were to go into bankruptcy, you might not lose the house. If you use home equity to pay off debts that could be forgiven with your bankruptcy, and then you have no equity in the home, it could really ruin your financial future.
Before choosing to use home equity to pay off consumer debts, talk to a financial planner about applying for home equity loans. They will have advice regarding your specific situation about whether it is the right choice for you.
By understanding these things you can better know how a home equity loan will affect you.