Home Equity Loans Do’s and Don’ts
by Michael Poulos, President/CEO of Michigan First Credit Union
Home equity loans are a great option to consider if you find yourself in need of a reasonable amount of cash in a short amount of time. However, whenever you take an action that could potentially affect your credit, it’s worthwhile to sit down and research the risks and benefits involved. With a home equity loan, it’s important to make sure you’re using the funds for a good reason.
- Use the loan for home renovations. Major upgrades like a new roof, plumbing repairs, and kitchen renovations are all great ways to use a home equity loan. These projects may boost the market value of your house – always a good thing!
- Use the loan for property upgrades. These loans are great for property improvements like building a garage, paving a driveway, and doing extensive landscaping work. Like renovations, using the loan for these purposes can increase your home’s value.
- Use it for education. Home equity loans work well for education, because you generally end up paying a lower interest rate than traditional student loans. If you’re using it for your child’s education, just make sure you’re not sacrificing your own financial stability – if you end up losing your home, that’s a bad situation for you and your child.
- Use the loan for daily expenses. If you find yourself needing a loan to cover basic bills and credit card debt, consider seeing a financial expert who can help you get on your feet. Remember, your house is on the line!
- Use the loan for vacations or other “fun stuff.” When you take out a home equity loan, you are using your home as collateral – which always includes the risk of losing it. It’s not worth the gamble for a week at the beach.
The most important thing to remember about home equity is this: home values go up, and they go down. Avoid using all of the equity in your home to get additional loan dollars – because you may end up underwater on your loan. Building a secure financial future is important, and with the right planning and consideration, a home equity loan can help you do just that.