Home Equity Loans: Four Ways Your Home’s Equity Can Work for You (Part 2)

Last week Patrick wrote about two examples of using your home equity to accomplish financial goals without touching that ridiculously low rate on your first mortgage (that many of you got with me!) Apparently, the message was received because we started four home equity loans this past week. Here are two more examples of how our clients have used home equity to achieve different financial goals.

1) Using a Home Equity Loan to Consolidate Debt

We recently worked with a client who had accumulated $75,000 in unsecured debt (mostly credit cards). They also had a car loan with a relatively high interest rate and a loan for recent siding and roof work. All told, they owed $150,000. They were not spending money on fancy cars or lavish trips. The credit card debt was mostly a result of boring life events – braces, dental work, broken kitchen appliances needing to be replaced, and the hot water heater breaking down.

Fortunately, they had significant equity in their home. We determined that by taking out a $150,000 home equity loan and paying off the debt, they could save $ 1,400/month in cash flow.

The takeaway: Moving debt from high-interest credit cards to a lower-interest mortgage can significantly improve cash flow and reduce stress on the household budget.

2) Using a Home Equity Loan for Home Improvement

Our second client wanted to do a large home improvement project. They loved their house; the location was perfect, and the neighbors were terrific. However, the kitchen was old, outdated, and way too small. The basement also wasn’t usable as-is, but it could be with some work. They met with a design-and-build firm and determined they could make the house work for them more efficiently for about $200,000.

Luckily, they had a lot of equity in the house, but they also had a 3% mortgage they didn’t want to refinance. So we secured a $200,000 home equity loan for them, and we can’t wait to see the pictures once the work is done.

The takeaway: Using your equity to finance a major home improvement doesn’t mean you have to give up your low-interest first mortgage.

Different Goals, Same Financial Tool

A home equity loan isn’t always the answer, but it’s worth considering when a large financial investment is on the horizon. Whether it is to invest in a business, fund an equity buyout for a divorce, consolidate debt, or improve your home, a home equity loan could be an option. We are always happy to have a conversation with you about how to make your home equity work for you.