If you have significant equity in your home, you have the option to borrow against that equity if you are in need of extra funds. You can do this using a type of second mortgage known as a home equity loan.
Your home equity acts as collateral, and you can either receive your funds as a lump sum or a line of credit. When it is a line of credit, it is known as a “home equity line of credit,” or HELOC.
One of the key advantages of a home equity loan is that you can use it however you want. Here are some ideas for what you can do with a home equity loan or home equity line of credit.
- Invest in your home by making repairs, upgrades or improvements. These could include anything from installing solar panels to building an addition to your home to adding a swimming pool.
- Put a down payment on a second home.
- Purchase a vehicle.
- Pay off high interest debt (note that you can also do this using a cash-out refinance).
- Use the funds as capital for starting up a business or financing a personal project.
- Pay for medical expenses.
- Paying for education either for yourself or for a family member.
- Creating an emergency fund and increasing the overall liquidity of your finances.
- Taking a vacation (not the most practical use, but it is allowed, and sometimes it may make sense).
- Pretty much anything else you have in mind. You have a ton of freedom with this type of loan.
A lump sum is typically best if you need to spend a lot all at once (such as on a repair or upgrade). A line of credit usually is ideal for ongoing expenses (i.e. continuing medical bills). Just remember that it is a loan, and you will need to pay it back.
We have shared what you can do with a home equity loan or line of credit. But is there anything you shouldn’t spend it on?
Our best advice is to make sure that you are getting value from what you spend on, and not pouring money into a black hole. For example, you should not take out a home equity loan to try and finance an ongoing payday loan cycle.
We also would recommend that you do not borrow money to invest in other assets. It is okay to borrow to invest in yourself (i.e. education or a new business). But borrowing to invest is digging your way into a hole and increasing your risk exposure unnecessarily.
Apply for a Home Equity Loan in Ohio
Now you have some ideas for what to spend your home equity loan funds on, and what to avoid spending them on. If would like to apply for a home equity loan, please give us a call at (614) 505-0620 to schedule your consultation. We work with homebuyers and homeowners in Columbus and throughout OH.
