1. Reorganize: Consolidate Debts Into One
Debt consolidation is the most common way home owners use home equity loans. If you have credit card and other debts, home equity loans can pay them off, leaving you with one monthly bill that’s likely smaller than the others combined. The interest rate on the consolidated debt will probably be half what you were paying on just one credit card, because the loan is secured by your home; you can deduct the interest;* and you may be able to pay off your debt sooner.
2. Remodel: Invest in Home Improvement
With carefully planned and professionally completed work, home owners can improve the value of the home by adding square footage, bringing it up to code and upgrading to contemporary design and features. Remodeled rooms—notably kitchens and bathrooms—add the most value.
3. Rethink: Invest in College
Given the skyrocketing cost of college, using home equity loans for education is a popular choice, especially for families with higher incomes who may not qualify for grants and government-backed student loans. Education can be a good investment. An educated son or daughter is more likely to become financially independent sooner.
4. Refresh: Buy Goods and Services
No matter what you do with your home equity money, you can deduct the interest. That’s a compelling reason to buy big-ticket items like a new car, an RV or that vacation you've been dreaming about. Home equity loans are also a boon if you get hit with medical bills or an emergency. Don’t forget, though, your home is on the line.
Home equity loans and home equity lines of credit (HELOCs) allow you to tap into the equity you’ve established in your house to finance other things. As an added bonus, interest payments are usually tax-deductible.
A home equity loan is generally the best way to go if you’re doing a one-time project, purchase or consolidation of debt. If your plan is ongoing, however, a HELOC is a more flexible way to go. If additional costs arise, you can withdraw more funds (maximums apply) without the hassle of having to reapply.
At the same time, they retain the tax deductibility advantage of home equity loans, and the interest rate is usually much lower than that of credit cards.
Tips of the Trade
Make sure you talk to Quest about your options and how they relate to your income, debts, credit history and property value.
Consider a secured loan when you want to borrow more money, get a lower interest rate, or reduce taxes.
Refinance an existing loan if you have enough equity and if the rates are lower now than when you initially borrowed the money.
Use a home equity line of credit that is secured by your home so that your interest is tax deductible.
Take out a home equity loan to get fixed rates and payments. Consider a homeowner loan that is secured by your property.
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*Annual Percentage Rate (APR), terms and conditions dependent on credit qualifications and approval, and subject to change without notice. **HELOC terms: 60 month draw. Monthly APR is fully indexed, variable rate based on Prime Rate (obtained from Wall Street Journal) plus or minus a margin based on loan-to-value ratio. Maximum APR that can apply: 18.00%. Minimum line of credit amount: $10,000. Minimum advance: $100. If appraisal required, additional charges may apply. May be subject to closing costs including origination fee, and may vary. +Interest on the portion of credit extension that is greater than fair market value of dwelling is not deductible for Federal income tax purposes. Consult a tax advisor for information regarding deductibility of interest and charges. Adequate property and flood insurance may be required. Credit union membership required. Other restrictions may apply. Visit www.Quest-CU.org for additional rate information.