The difference between what you owe on your Tulsa home and your home’s value is called “home equity”. If you bought your home a few years ago, you may be looking at a hefty equity right now. As interest rates and home prices go up, some homeowners choose to stay in their homes longer. If you would like to tap into your equity, what are the best ways to use and when should you just leave it alone?
Home Improvements
This happens to be one of the most popular reasons homeowners use their home equity. And it’s a good one…especially when you make smart decisions that improve your home’s value as well. If you plan on selling your home in the near future, a nicely upgraded kitchen and bathroom will help entice potential buyers. But these come with some hefty price tags, too. Using your equity for this makes sense. However, if your combined equity loan payment and regular monthly mortgage payment totals more than you can afford, find more economical ways to make these home improvements.
Debt Consolidation
At first glance, paying off high-interest debt (credit cards) with a lower-interest debt (home equity loan or HELOC) seems like sound advice. And it is, provided that you don’t accrue more debt as you pay off your equity loan. However, trading unsecured debt for secured debt, you risk more. If you don’t pay your credit card bill, you only lose your card. But if you don’t pay your home equity loan or HELOC, you risk losing your house. Address the reason behind your high debt first. Then decide whether an equity loan makes sense.
College/Continuing Education
Student loan rates usually run lower than home equity loan rates. So, if you’re thinking about using your equity to pay for your child’s education, you might want to rethink it. Tacking this debt onto your current debt loan may mean that you continue to pay it after you retire. Plus, if you find your financial situation changing in the next few years, you may end up defaulting on the student loan and losing your home at the same time. Let your student take on that debt with their own student loan instead. They have more earning years left than you do. If you still wish to help them pay for their college education, help subsidize their monthly payments.
Real Estate Investing
When home prices surged over the past couple of years, some people thought that they could tap into their home’s equity to invest in other properties and turn a quick buck. And, for some, that worked out quite nicely. However, in today’s market, things have changed. You may end up with a second property (and that extra monthly payment) for much longer than you expected. If you can afford to pay for those two properties at one time, tapping into your home equity may be a good way to expand your real estate portfolio. But if that may bankrupt you financially, don’t do it.
Lifestyle Expenses
Considering a fabulous once-in-a-lifetime getaway? Looking at trading in your old jalopy for a new sportscar or luxury sedan? Want an extravagant wedding? Try other ways besides a home equity loan to pay for them. It is not worth risking losing your Tulsa home for these. Find ways to save up for that big vacation. Or simply make your vacation dreams a little more realistic to your budget. Take out a car loan instead of an equity loan. Finally, visit Pinterest boards, watch videos, and invite your friends to help you plan a great wedding on a smaller budget.
