Home equity loans are secured by the value of your home. If you own your home outright, you can usually borrow up to eighty percent of its appraised value. You can also borrow at a competitive interest rate and have several years to repay the loan.
Of course, if you still have a mortgage, you will need to deduct the amount you still owe from the total amount that you can borrow. For example, if your house is appraised at three hundred thousand dollars, and you can borrow eighty percent of its value, which is two hundred forty thousand, but you still owe two hundred thousand, then you can borrow up to forty thousand dollars.
However, just because you have access to the equity in your home doesn't mean you should borrow for frivolous purchases. You will still need to pay the money back, and your home will have less value should you choose to sell in the future.
Home improvement loans
if you use the equity in your home to improve your home, you will raise the value of your home, replacing the equity that you used to obtain the loan. In essence, you will be getting your home repaired or remodeled for free if you decide to sell at a later date and your home's value remains constant.
You may choose to finance your education through a home equity loan rather than through federal student loans. More education usually means more income, so the investment pays for itself long after the loan is payed off.
While home equity loans are not as flexible in repayment as student loans, you are committed to repay the loans instead of accumulating interest as in forbearance status for federal student loans.
In addition, if you ever face severe financial trouble, and are forced into bankruptcy, federal student loans cannot be included in restructuring your debt while private home equity loans can be included. Of course, this is not a viable reason to pay for an education with a home equity loan, but it is a factor to consider.
Starting a business
Whether you want to start a small side business to supplement your income, or quit your job and work for yourself full time, your vision needs to be financed. Starting your own business always involves some risk, but it is a worthwhile investment because it creates equity if it is successful.
In short, the best reasons to get a home equity loan is to replace the value that is lost and to gain equity through the wise use of the equity that you worked hard to acquire.