Five Smart Ways to Use the Equity in Your Home

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Hispanic lady with a paint roller. Working on home improvements.

A major advantage of owning a home is that it will build equity as you pay off your mortgage. And you can put this equity to good use by taking advantage of a home equity loan or line of credit. But remember, some uses are better than others. Here are five smart ways to use the equity in your home.

Make home improvements that add value.

The most common way to use the equity in your home is by making home improvements. But before adding a pool or converting the garage into a man cave, be sure these improvements actually add value to your home. Remodeling/updating your kitchen, upgrading the exterior siding on your home, and adding energy-efficient appliances or windows are extremely helpful for resale. Even with making valuable home improvements, you want to be smart with your choices. Putting a $65,000 gourmet kitchen in a $200,000 home may not make much sense in the long run, especially if you plan to sell your home at some point.

Consolidate your high-interest debt.

You may be able to reduce your monthly expenses if you consolidate your high-interest debt into a low-rate home equity loan. Let’s say you have three credit cards with a total outstanding balance of $15,000, and the average rate of these cards is 15% Annual Percentage Rate (APR). By transferring this balance to a home equity loan, you may be able to make one payment a month at a much lower rate–which could save you a lot of money in the long run.

Pay for emergency expenses.

You may need to tap into your home’s equity to pay for large medical expenses, major car repairs, or other expenses caused by an unexpected job loss. A home equity line of credit can help you have an emergency fund available in case of any costly, unexpected situation.

Pay for college tuition and other expenses.

Most people use student loans to pay for the high cost of college tuition and other associated expenses. If that’s the case for you, consider using a home equity line of credit, as you’ll likely get a lower rate and possibly receive tax benefits as well.

Invest in a business or property.

If you’re looking to start your own business or invest in a property or other business venture, consider using the equity in your home. Because of the inherent risk you take when making an investment of this nature, it is recommended that you use no more than 80% of your home’s value for this purpose. But, this type of investment may have some great payoffs.

As you can see, there are many ways you can put the equity in your home to good use. Look at your home’s equity as a way to invest in your future, not as a petty cash fund for things you want now but really can’t afford. Always keep in mind that you want to use your home’s equity in a way that will give you a positive return in the future.

To learn more about home equity products at BancorpSouth, visit a branch near you today.