What can a home equity loan be used for?

Parents that found out a home equity loan can be used for home improvements and are celebrating with their kids.

There are many ways to use a home equity loan to meet your financial needs. However, because a lender will secure a home equity loan to your house, you should carefully consider how it may affect your personal security and financial future.

The best uses for home equity

Two popular ways to use home equity are consolidating debt and making home improvements. Let’s take a closer look at each of these options.

Home equity loan for debt consolidation

If you have several credit cards or loans with high balances and high interest rates, using your home equity to consolidate your debt might save you money, and reduce financial stress.

When you consolidate debt using a home equity loan, you combine multiple debt payments into one monthly payment.

You may also see an increase in your personal cashflow if consolidating debt with a home equity loan reduces your interest rate. Any money you save on monthly interest could go toward building a savings account, or paying down your mortgage.

A home equity loan for debt consolidation may not be a good idea if you know you will take on more high-interest debt in the future.

Home equity loan for home improvement

When it comes to home improvements and renovations, home equity loans are best used for higher dollar projects. Whether you want to add square footage or modernize interior and exterior features, home equity could or may be a good source of funds for larger home improvements that may add value to your home.

There are other ways to use your home equity.

Using a home equity loan to pay for school or college tuition

Education may be expensive, and financial aid options may be limited. In these cases, home equity could make it possible to obtain the financing you need to provide yourself or your children with a quality education.

Financing life events and major purchases

Maybe you’re getting ready for a big wedding, a new car, or special vacation. Your home equity can be an option for financing these types of purchases.

Emergency expenses

When the unexpected happens, you can use your home equity to pay medical bills. A home equity loan may also support your family while you seek employment after a job loss.

Looking to tap into your home equity? Discover® Home Loans offers low fixed rates on home equity loans with terms of 10, 15, 20, or 30 years and $0 costs due at closing.

The worst ways to use home equity

As you can see, there are many good ways to leverage home equity. However, there are also a few home equity uses that may be less than ideal.

Avoid using home equity for basic expenses. If you want to pay for day-to-day living expenses, you’re probably better off creating a budget you can stick to without having to dip into your home equity Try to use your home equity to make large purchases that may yield a positive return.
Think carefully about using home equity for investments. You might want to use the cash from a home equity loan to play the market or tinker around with investments. Leveraging home equity capital for investment purposes is a complex matter and, may have legal implications, so consult with a financial advisor or attorney.

Closing thoughts: Home equity loan uses

A home equity loan may offer you a versatile and powerful financial tool for a wide range of purposes. Whether it’s for home improvements, debt consolidation, financing an education, or covering emergency expenses, the flexibility of a home equity loan could or may allow you to tap into the equity built in your property.

By leveraging the equity in your home, you may be able to access considerable funds at potentially lower interest rates compared to other loan options. However, you should approach this form of borrowing with careful consideration and ensure the loan’s purpose aligns with your long-term financial goals. Ultimately, a home equity loan could help you achieve a brighter financial future.

To learn if a home equity loan is the right choice for you, talk with a Discover Personal Banker at 1-855-361-3435, or apply online in minutes.

The information provided herein is for informational purposes only and is not intended to be construed as professional advice. Nothing contained in this article shall give rise to, or be construed to give rise to, any obligation or liability whatsoever on the part of Discover Bank, its affiliates, or successors.