Often homeowners don’t even think about a home equity loan when they are faced with financing high-ticket items such as medical and education expenses. For many people the thought of using the equity in their home makes them cringe because they know the importance of maintaining the value in their home. On the other hand, do they have another way to pay for these increasing expenses?
Paying for college
One expense that plagues homeowners most frequently is the high cost of college tuition. Today’s economy supports the importance of a college education for every student, but if a parent has not been able to save for college or has not saved enough, they have to find another way to finance a college education for their children. Unless a child qualifies for a full scholarship, this often means taking a loan against the home in the form of an equity loan.
Sometimes things happen that we don’t plan, and we need to take care of those. The high cost of medial care, especially that which is not covered by insurance, is also an expense for which a home equity loan can be used. It should be differentiated that these expenses are those of a catastrophic nature, not simply a few doctor bills that are not covered. It also needs to be understood that in some European countries, the existence of the National Health Service makes this use unnecessary, but in other countries such as the United States and most of Canada, it is a fate likely to befall many.
Home repairs and remodeling
Until the late 20th century, no one even considered a home equity loan for any other reason than making repairs or additions to their home. A home wasn’t thought of as a way to pay medical bills or college until many years later, and there are many today that are still of that frame of mind. However, using the equity to make repairs or improvements to your home means it will be worth more money when you decide to sell it or it becomes a part of your estate if you should pass on before you choose to sell.
Consolidation of bills
A home equity loan can also be used to consolidate high interest loans or credit cards into a payment that is manageable. It’s important to keep in mind, though, that you may actually be extending the amount of time you will be paying on some of these loans, so do be certain to assess the feasibility of consolidating loans with smaller balances before doing so. Anything that is due to be paid off in one year or less may be best left to run its course rather than to extend it for five or ten years into an equity loan.
A home equity loan can serve many useful purposes, but because the loan is secured by the borrower’s home, it should be used sparingly and with the understanding that a default can mean the homeowner loses his home. Don’t be frivolous with equity in your home, but rather use it to finance items that will contribute to your financial well being or provide a future for your children.