Are you baffled by how people with small salaries manage to buy expensive stuff or do home makeovers? They likely depend on a home equity loan. But home equity loans are not new. If anything, they've been around as long as mortgages.
The current pandemic has created an enabling environment for home equity. Young homeowners in their twenties and early thirties are also picking up new habits. They are dropping credit cards for these loans as they pursue cheaper borrowing.
Home equity loans work by borrowing money against your home's total equity. Equity is the difference between your home's value and your mortgage balance. For example, if your home's value is $200,000 and you have a $100,000 mortgage balance, your equity is $100,000.
So what can you do with a home equity loan? We have all the information you need in this article.
Why Get a Home Equity Loan?
Home equity loans have lots of perks. For starters, they come with low-interest rates compared to other loan types. You can also access much more, from a few thousand dollars to hundreds of thousands. Drawing this amount is rarely possible with credit cards and other loan types.
Home equity loans are either fixed-rate or have a variable interest rate in the case of a HELOC. Fixed-rate loans come in one lump sum. HELOCs work on a borrow-as-you-need basis.
Current Trends in Home Equity
The housing market is fired up, fueled by the pandemic as people seek security in very uncertain times. Mortgaged homes in America now make up over 60% of America's total properties. The home equities of these properties swelled to more than USD 1.5 trillion, up 16.2% from last year.
Experts have celebrated this swell, saying it will improve borrowers' financial status and protect them from possible job losses. These homeowners may also use the loans to start or fund an existing business which adds to the economy.
How to Build Your Equity
If you're paying a mortgage, you're in a great position to build your equity. You can build your home's equity by either reducing your mortgage debt or growing your home's value.
If you're not a homeowner yet but are planning to buy a home on a mortgage, you can try this. Start by making a sizeable down payment to build equity faster. This method will help you avoid paying PMI if your down payment is equivalent to 20% of your mortgage cost.
You could also consult a realtor to help you remodel your home in ways that will attract a better value. A standard remodeling can improve your home's value by about 65%.
What Can You Use a Home Equity Loan for
House prices have multiplied many times over the last decade, giving homeowners significant equity growth. These prices have surpassed income growth which favors equity, especially for homeowners who survived the 2011 housing slump. Check out 10 ways to spend your home equity loan.
1. Pay for College
You can pay for college, but you have to apply for a mortgage on top of FAFSA. However, these applications are nothing compared to how home equity loans make paying for college easy. They are low-interest, easy to access, tax-deductible, and offer immediate liquidity.
2. Repay a Student Loan
In this case, people borrow a fixed amount of money and use it to settle student loans. A home equity loan may also be a more manageable type of loan for the circumstance. With the fixed-rate type, you can pay off the loan in predictable amounts.
Home Remodeling- It's hard to remodel with bills eating up most of your salary. A home equity loan can help change your furniture, do a paint job or even upgrade your roof.
3. Settle Medical Bills
Depending on credit cards to cover ER procedures, surgery, and hospital stays only racks up high-interest debt. Home equity loans enable you to pay off the debt in one go or installments with affordable interest rates.
4. Fund Investments
There are so many investment options. Depending on your equity size, you can buy your dream condo in Houston or another location of your choice. Then you can lease it out to pay off the loan and then move in once settling the debt.
5. Fund Your Wedding
Planning for weddings and major life celebrations takes mountains of planning and budgeting. The easy-to-service home equity loans can help you get everything you want and pay the bill conveniently later.
6. Business Capital
Wondering how to get an affordable loan to set up a business? Unlike regular banks, home equity lenders don't require business plans to approve your loan. They are also more affordable in the long run and will help you build your credit.
7. Get a New Car
You'll almost certainly need to take out a loan to fund your car purchase. You don't have to take out a standard car loan. Instead, you might use your accrued home equity to pay for a car upfront and prevent car repossession trouble.
8. Go on Vacation
You only live once. While saving and walking on eggshells seems to be normal nowadays, going on vacation can help you significantly reduce stress. It's worth your home's equity to create unforgettable memories and thrilling experiences for yourself, your friends, and your family.
9. Consolidate Credit
Americans will add about $50 billion in credit card debt this year. If you have credit cards and other high-interest debt, you can consolidate these obligations into a lower-interest home equity loan. You will save money on interest and simplify your bills by merging several monthly payments into one.
Have you wondered how to get some cash to pursue financial goals you can't quite accomplish with your monthly income? With a PrimeWay home equity loan, you can get the money you need quickly against your equity. With affordable rates and flexible terms, you can accomplish many expected and unexpected expenses. You can invest in the stock market, save for future emergencies, or pay for the care of a family member.