Some homeowners are using a very convenient way to secure additional funds that they may need in a certain area of their life, even if they don’t have that money in the bank right now. Home values are increasing in a number of areas of the country, which has made it easier than ever before to tap into a home in order to get a loan or line of credit. A home equity loan, or home equity line of credit (HELOC) can be used for a number of different purposes. While it may sound convenient, be completely sure that this is a process you want to take on. If you default on your payments, you could end up losing your home. Let’s talk about a few different reasons why someone might want to utilize one of these loans to raise capital.
Startup Costs
Funding your startup is often the most challenging task to get your startup off the ground. Bootstrapping means trying to get the company running without depending on outside investors nor paying vendors and suppliers for anything during your launch. Using equity in your home is a great way to bootstrap your business before you ask for friends and family money or go to angel investors to raise capital for your startup.
Tuition Costs
Investing in your own or your child’s future is something that many parents would love to do rather than have to take out student loans with high interest rates. If you don’t have this money already put away and don’t want to tap into your 401k, think about speaking to someone at a financial institution about the details of a home equity loan or HELOC. The interest rates and fees tend to be much easier to take care of than what you would pay with a student loan.
Paying Off Debt
Whether you have a number of credit cards that are accruing more and more interest each month, or if you have medical debt that you need to take care of, you can consolidate this debt to a lower interest rate. Though you may not realize it, paying down your debts is another way to raise capital. Increasing your net worth is what’s important. You can pay the debt off all at once, and then you will be able to focus on paying a more reasonable amount all in one. Many people actually find that the pressure of potentially losing their home is what they need to keep them focused on making the payments.
Emergency Funds
It is a common recommendation that you have six months of living expenses saved up in the instance of an emergency. This emergency could include losing your job or being involved in an accident that takes you out of work. If you don’t have this money, you probably feel very nervous each day. You can use a home equity loan or home equity line of credit to raise capital and build up an emergency fund if you don’t already have one.
Home Improvements or Home Repairs
If you have been thinking about the various repairs and improvements that need to be done to your home, you have probably become overwhelmed with the amount of money that you know this would require. Something as simple as a roof repair can cost thousands of dollars. If you don’t have this money, you could be scrambling to figure out how to protect your home investment. Just investing a bit of money to increase the overall value of your home is a big investment. can even use the interest as a tax deduction if you are itemizing.
Funding your startup is just one of the ways you can benefit from having equity in your home. Unleashing that capital toward other purposes will have a big impact on your financial condition.
