A home equity loan allows you to borrow money from the equity you’ve built in your home by putting your home up as collateral. This collateral typically allows the lender to offer you a lower interest rate than you would get with other types of loans, but remember that if you don’t pay your loan back on time, your house could end up in foreclosure.
To avoid this, make sure you know how much you’ll pay each month and how that repayment will fit into your household budget.
There are many ways to use a home equity loan and leverage your homeownership. If you own your own home, here are a few things you may want to do with a home equity loan in 2024.
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4 great ways to use a home equity loan in 2024
If you’re a homeowner, there are numerous ways you could use your home equity to improve your life. Here are a few of your options.
Make home repairs
There might be something you want to fix about your home, even if you love it. Maybe your kitchen was built in the 1980s and needs updating. Or, perhaps your master bathroom would benefit from a soaking tub. No matter what the project is, funding it through a home equity loan could be a great option.
One reason a home equity loan is a good idea to fund these changes is that you could get a tax break for making certain repairs or renovations to your home. If you are using a home equity loan for repairs on the home the loan is taken out against, interest payments are typically tax deductible.
These home repairs should also increase the value of your home on the market. If you’re thinking about selling soon, that increased price could help pay off your loan.
Find a home equity loan to improve your home right away.
Consolidate debt
If you have a lot of high-interest debt, such as debt on credit card purchases, you could use your home equity to consolidate that debt and potentially get a lower interest rate than what you’re currently paying on what you owe.
“I think it’s very situational,” says Hanna Horvath, a certified financial planner. “I think if you have a lot of equity in your home it could definitely be an option.”
Horvath cautions, though, that you should not replace one debt with another without thinking things through first.
“There are behaviors that led you to carry that credit card debt in the first place,” she said. “I think that the real bottom line is you need to have a plan to pay it off.”
Start a business
Opening a small business takes a decent amount of startup capital, and finding investors can be hard. Taking out a home equity loan is one option to get your business up and running. A traditional home equity loan is an option as is a home equity line of credit (HELOC), which works more like a credit card than a lump-sum loan, allowing you to borrow what you need during the draw period.
Still, you should make sure you’ve done your homework and have a solid business plan before you pursue this option. Many new businesses fail, and you’ll still be responsible for paying back your loan regardless or face foreclosure.
Paying medical bills
Finding yourself in a medical emergency is scary for a lot of reasons, not the least of which is that it can put you in a dire financial situation if your insurance doesn’t cover the costs. A home equity loan could help pay an unexpected medical bill, as it allows you to spread the cost over time at a lower interest rate than many other loans would offer.
The bottom line
There are many reasons you might consider using a home equity loan in 2024. No matter why you decided to borrow against your home, though, make sure you have a plan to pay back your loan, as you could lose your house if you aren’t able to do so.
