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Money Matters Blog

Monday, June 25, 2012

When and How to Use Your Home’s Equity

For most of us, a home is the biggest investment we will make in our lifetime.  And building equity in that home can help stabilize ones financial position and allow you the financial flexibility to do any number of things in the future.

One of the ways to access your home’s equity and give you the funding needed to realize your dreams is through a home equity loan.  At Community Financial, we have some amazing home equity loans for our members with rates as low as 2.5%.

However, deciding if or when to take out a home equity loan is a major financial decision that shouldn’t be taken lightly.  Like any major purchase or financial move, take your time and research which plan is best for you.  To help, the United States Federal Reserve Board and Federal Trade Commission both published some advice on what you should look for when shopping for a home equity loan.

You should also evaluate what the loan will be used for. To help with that, consider the following tips on some of the best uses for a home equity loan:

    •            Consolidating Debt: One of the reasons to open a home equity loan or line of credit is to consolidate outstanding debt into one lump sum.  However, some financial advisors suggest this may be a risky unless the reason the debt was compiled in the first place has been rectified.  If you are consolidating debt, be sure that you’ve also addressed the behavior that got you into debt in the first place. 

    •            Increasing the value of your home:  By using the equity you have in your house to make major renovations you can actually increase the value of your home and add to the equity.  But be careful not to over-renovate and diminish your return.  Check out our Money Minute video by Eric Esser, VP/Mortgage Services for some home improvement suggestions.       

    •        Paying for the Future: Another option for a home equity loan is to fund you or your families’ college education.  By capitalizing on a low rate and a long draw period, you’ll have funds and the flexibility you’ll need.  But remember, just like a home improvement, do your homework so your investment in education yields a good return.

Whatever you decide to use your home equity for, remember that it is tied to your home, so be sure to understand the details of the loan and what it means for your financial future.

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