Tips for Using a Home Equity Loan or Line of Credit
Learn when and how to best use your home equity loan or line of credit
Home equity can be used for a variety of things, including home improvements, car loans and debt consolidation. But, it's not limited to that. Lenders allow homeowners to use the equity they build in their homes to pay for any purchase they want. Whether you've opted for the fixed-rate, lump sum home equity loan or a revolving home equity line of credit, you should carefully consider how you utilize these funds since you are using your home as collateral. Learn more about using your home equity responsibly.
How to use your home equity loan or line responsibly
Homeowners can utilize their home equity for major purchases and investments. Below are some sensible ways to use your equity:
- Debt consolidation: If you have credit card debt and multiple loans with high interest rates, you may be able to save money by consolidating your debt with a home equity loan or line of credit. These loans may offer a lower interest rate and allow you to save a little extra each month to help pay off your debt faster.
- Emergency Fund: If something unexpected happens, you may not have enough money in your savings account to cover the cost. A home equity line of credit could put your equity to good use by serving as an emergency fund that you can access by simply writing a check if the need arises.
- Education: Home equity loans can help parents afford college tuition for their students. With tuition rising at the rate that it is, financial aid and scholarships will likely not cover the total. The low interest rates on home equity loans can come in handy here.
- Home improvement projects: Installing new windows or remodeling the kitchen are expensive projects that many homeowners can't afford out-of-pocket. By drawing on your home equity and then reinvesting it in your house, you're helping to increase the value of your home and put your money to good use.
- Medical bills: The high costs of hospital stays, surgeries and prescription medication can put a strain on your finances. If medical bills are a major portion of your expenditures each month, consider applying for a home equity loan or line of credit to help absorb these costs.
- Vehicles: People often use their home's equity to finance a vehicle purchase since they may receive a lower interest rate on a home loan than a traditional car loan.
When not to use your home equity loan or line
Using your home equity puts your house on the line — meaning that if you fail to pay back the loan or line, you could lose your home. For this reason, it is not advisable to use home equity loans and lines of credit on smaller items or day-to-day purchases that you want but may otherwise struggle to afford. Purchases like new clothes or small electronics should not be made with your home loans.
Take out a home equity loan or line with Citizens Bank
When you're ready you can complete the home equity line of credit application online. You can also start the process of applying for a home equity loan by answering a few questions online and a Citizens Bank Home Loan Originator will contact you to complete your application. You can also speak with a Home Loan Originator to discuss your home loan options if you still have questions.