One of the perks of paying consistently on your mortgage is that you begin to build-up equity through the years. As long as you have the funds to continue to pay your mortgage, you can get a loan against the value of this equity, resulting in a sudden windfall of funds that you can use however you’d like. While it would be nice to use this extra cash to splurge on something you want, there are a few better ways to make this money work for you.
Pay-Off Debt
When it comes to the world of borrowing money, not all debt is equal. Some debt, such as credit card debt, carries with it a high interest rate that costs a lot of money to service. Therefore, if you can use your home equity to reduce or eliminate your high-interest debt, you can essentially limit the number of payments that you have to make and reduce the interest you pay to get it paid off.
Take Care of Your Home
Since your home’s value is what afforded you the opportunity to have this extra cash, it’s a good idea to invest that cash in your home. Making upgrades and performing renovations that you wouldn’t normally be able to afford makes great use of home equity because it helps to increase the value of your home even more. Urgent repairs, such as performing a roof restoration, repairing a basement leak, or eliminating a major pest problem also fall in this category of home improvement.
Grow Your Money
Although the value of your home grows over time, it’s difficult to convert those gains into real-world money unless you sell your home. If you utilize your home equity, though, you can invest that money into some type of financial instrument that can provide you with immediate gains. Whether you choose to invest in stocks, bonds, start-up funding, or some other venture, it’s a good feeling when you can essentially create money out of thin air.
Replace Your Vehicle
If your vehicle is on its last legs, taking out a home equity loan can be a great way to replace it with a newer, more reliable model. In many cases, the home equity that you have accrued will be enough to pay for a new vehicle in cash. This prevents you from paying interest on a vehicle loan while also paying for a mortgage, which could put your budget over the limit.
As with many other financial moves, there are multiple options when it comes to taking advantage of your home’s equity. For each individual, only a few of these options make sense. Therefore, it’s important to speak with a financial advisor before borrowing against your home equity to ensure it’s the right decision for you and to see what your best options are.
