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How Your Home Equity Can Work for You

Oct 27, 2022

As you pay off your mortgage, your home gains equity, which is the difference between what your home is worth and how much you still owe. You can then borrow against this equity to borrow a large sum of cash at a rate that’s typically much better than unsecured loans.

So, what can your home’s equity do for you?

Your equity is accessible through a home equity loan, which is one lump sum with a fixed rate, or a home equity line of credit, which has a variable rate and acts much like a credit card.

The cash from these loans are most commonly used for home renovations or improvements, but there are no limitations on what you can use the funds. Some other ideas include:

- Consolidating high-rate debt from other loans and credit cards

- Financing private or higher education instead of taking out a private student loan

- Buying or repairing a vehicle

- Paying for big-ticket items or events such as a wedding

- Refinancing your mortgage with a cash-out refinance

Reinvesting your funds

By accessing your home’s equity and reinvesting it in the house itself through renovations and improvements, you may also raise your home’s value. And since equity is based on how much your home is worth, this opens you up for more equity down the line – or, if you decide to sell and move, more profit.

Additionally, a cash-out refinance may boost your funds in two ways:

- By refinancing your mortgage, you may lower your rate and save money on interest; and

- By taking the cash-out option, you can put that extra cash back towards your home

The benefits of consolidating debt

A home equity loan is also a great option if you’re juggling multiple high-rate debts, such as credit cards and other unsecured loans. Since home equity loans are secured against your home, they come with several potential benefits:

- Typically much better interest rates, leading to savings on interest

- Fewer monthly payments, which is much easier to keep track of

- Interest you pay may be tax deductible*

Good debt and bad debt

Not all debt is bad for you, either. Simply put, whether the debt is good or bad depends on how it affects your finances and credit score. Overused credit cards and high-rate, short-term loans can be extremely difficult to pay off, leading to a lower credit score and other negative outcomes.

Long-term loans that you’re able to pay regularly, however, can actually improve your credit score and overall financial health, as you show you’re a reliable borrower. When you have good debt, you don’t have to feel as rushed to pay it off.

Still, accessing your home’s equity is not a decision to be made impulsively. Additional fees and different terms may mean that refinancing or consolidating debt with a home equity loan may not save you that much money. Plus, if you’re already carrying other debt, it could add to your burden in a way that makes your debt even harder to pay off.

Is a home equity loan or line of credit right for you?

Honda FCU offers both home equity loans and lines of credit at competitive rates. Even better, we’re committed to helping you improve your financial health and get the funds you need to achieve your dreams.

Talk to us today to determine if accessing your home’s equity is the right choice for you.


*Consult with a tax advisor.