How a Home Equity Loan Can Help You Get Ahead

“Is there equity trapped in your home?” asks a local radio advertisement. You’ve heard them – all the bank and loan companies suggesting that you should put your home to work for you to finance a vacation, or that new car you’ve always wanted. Many of the nation’s financial advisors warn against taking out home equity loans. Since you’re securing a home equity loan by agreeing to hand over your house if you don’t make the payments, they suggest, it’s a risky endeavor. There are times though, when taking out a home equity loan can be the launch pad to launch you into a better life. Here are four ways that a home equity loan can be an investment in a better future.

Use a home equity loan to pay off higher interest debt.
Are you paying off high interest credit card, auto and education loans? If your monthly repayments on loans and credit cards are straining your budget, then a debt consolidation loan may be the answer. Add up the remaining balance on all of your loans – including credit cards. Don’t forget to count in any early repayment fees. Shop around for a home equity loan, and add up the total cost of the loan. (Tip: Shop around for a lender that charges no loan fees. There are a lot of them out there these days.) Is the total cost of the loan less than the total of all your current loans? Then a debt consolidation loan makes sense for your. Added bonus – the monthly repayment on a single home equity loan will often be nearly half what you’re currently paying each month.

Finance your education with a home equity loan.
An advanced degree or certification in your chosen field can be expensive – and not everyone is eligible for those wonderful low interest government loans for students. Many banks offer ‘education loans’ that carry nice perks like deferred payments and interest only payments – but you pay dearly for those perks in higher interest rates. Home equity loans are typically far lower in interest and often carry no fees. When you take out a home equity loan to pay for your education, you’re making an investment in your future. That degree or certification will increase your earning potential, and lead to a better life.

Fund a new career with a home equity loan.
No one ever got rich working for someone else. The old adage is the basis of the entrepreneur spirit. Many people turn to the Small Business Administration for low interest business loans, and that’s a great recommendation. But most banks, even those that deal with the SBA, require that the owner of the business make a personal investment in their own business. Your home equity can help there in a couple of different ways. Directly, a home equity loan can be a great source of funding for that personal investment. Indirectly, you can use the proceeds of a home equity loan for living expenses and emergency funds and make your business investment from your savings.

Use a home equity loan as a down payment on a second house to generate income.
Rental property is one of the best ways to generate extra income. If you’re thinking of buying a second property for income purposes, a home equity loan can provide a healthy down payment that will lower both the interest rate on your new home mortgage and your monthly payments.