Nearly 7 out of 10 Canadians own their homes. By taking out a Home Equity Line of Credit (HELOC), you can improve your cash flow for a variety of situations. However, in terms of your financial well-being, some reasons to use your home’s equity are safer than others. Here are 4 safe ways and 2 not-so-smart reasons to use your home’s equity.
Home Equity Assistance, A Treasure Chest?
After faithfully making your mortgage payments for years or even decades, you have built up a double bonus: 1. Beautiful home and 2. Home equity, which can be tapped into. As Canadian housing prices rise, homeowners can extract more money through the HELOC. But, even as you consider this option, remember that your home is “where you live.”
Unlike a credit card, which serves only one purpose, your house is also your living dwelling. Thus, you might want to avoid spending your home equity on questionable circumstances. You should concentrate on how to intelligently use your home equity.
One of the primary benefits of the HELOC is a lower interest rate because it is a secured loan. You should think about what you want to accomplish by spending your built-up equity. Would you like to pay off high-interest loans or would you like to lower interest rates paid on your overall household debt? This home equity review will discuss the most popular ways for spending your HELOC.
1. Smart: Home Renovation
The primary reason for taking out a HELOC for most people is for home renovation. Would you like to build a three-car garage or four-season porch? Or maybe you want to build a spare bedroom in the basement for a budding teenager. Finishing the whole basement may even be the project. Repairing your roof would increase your home’s longevity. I bet you can think of many necessary repairs that you have been putting off. Home improvements have the following benefits:
- Improve Livability
- Increase Longevity
- Added Value
Home remodeling is a win-win situation.
Experts suggest that you may want to concentrate on improving curb appeal by redoing your front landscaping, front door entrance or driveway. Bathrooms and kitchens might also give you more “bang for the buck.” Certainly, home appraisers will notice the new fixtures and increase the market value of your home.
2. Solid: Student Debt
A college education is worth its weight in gold. Besides opening new career path ways, you can develop important networking relationships and gain a better understanding of proper personal finance management. Using your home equity to pay off student debt is a nice way to complete the educational process.
Not only will you close your financial educational duties on a good note, but you will have the freedom to spend your future income on other things. It is possible that your credit rating could be improved based on your faithfulness in handling your debt obligations.
3. Clever: Credit Cards
Debt consolidation can be achieved using the HELOC because most unsecured credit cards will have higher interest rates. You might have credit cards charging 15% to 20% interest and a $15,000 bill – with a HELOC you might be able to pay off that loan at a rate of 5% to 10%. You could save thousands of dollars using this technique. Paying off your plastic can reduce the overall interest rate you pay on your total household debt. Just remember that you are using your secured asset against unsecured debt. Consolidating your debt can be a very smart move, but only if you remain disciplined and have an intelligent budget / finance plan in place. Your goal is to use your home’s equity to get you back on track, not hit the reset button temporarily. Eventually that well runs dry and you may find yourself in a worse position than when you started.
4. Prudent: Retirement
The Globe & Mail reported the findings of a Broadbent Institute study on Canadians, showing that “less than 20 per cent of middle-income families have saved enough” for retirement. Therefore, some individuals might decide to use their home equity to start a retirement fund.
1. So-So: Vacation
Of course, you might really need to get away and a vacation might be quite relaxing. The biggest problem with an exotic vacation is that you might have spent years building up your home equity and with a vacation, you might spend a big chunk of it in a week. After the vacation, what will you have to show for it? Plan ahead and know your financial limitations (and stick to that plan).
2. Bad: Gambling
Don’t let your equity money burn a hole in your pocket. Avoid wasting your home equity on frivolity, such as the Lottery Canada Lotto Max or Lotto 6/49. We’re not just talking lotteries, but off-the-wall business ideas, investments etc. When in doubt about an idea, seek an professional accountant, business consultant, or lawyer for advice beforehand.
A HELOC allows you to increase your cash flow, by tapping into your built-up home equity. Use it wisely. Now, that you feel more competent about intelligent uses for your home equity, you can take the first step and request your free mortgage quote right here with Unimor Capital. We’ll walk you through the steps, help you select the best options, and get you on the road toward your financial goals.