When you have home equity, you can get cash for important investments or expenses, without having to pay an unreasonable interest rate. Although this cash is yours for the taking, it’s important to use it in ways that will actually pay you. In order to get the most value from your home investment throughout the years, you have to be careful about how, why, and when you choose to convert your equity into cash.
Securing a home equity loan to pay for property improvements is one of the most financially sound ways to use this cash. The best home improvements can instantly restore some of the equity that you’ve lost in the form of sweat equity. Rather than focusing solely on aesthetic improvements, however, homeowners should implement improvements that will have a direct impact on the actual affordability, usability and worth of their houses. For instance, energy-efficient upgrades can lead to lower energy bills and hefty tax credits. A strategic kitchen remodel can increase marketability and lead to a more profitable deal should you list your Irvine home for sale.
Urgent and unexpected expenses can and often do exceed the emergency funds that prudent homeowners create for themselves. When this happens, home equity can be used as a last measure to prevent loss of assets or other consequences of non-payment. Urgent and unexpected expenses can include medical bills or even basic living costs after unplanned job loss or other short-term changes in earnings such as pay-cuts and demotion. While urgent expenses aren’t the ideal use for your home equity, it’s always nice to know that the money is there if you need it.
Using your home equity to clear up delinquent, credit accounts could be a really good idea. Not only will this centralize your debt, but it will also put a stop to late fees and aggressive collection efforts while giving you access to a far more manageable interest rate. Before starting the home equity loan process, however, take the time to crunch the numbers and make sure that you’re financial ready to commit to a dedicated debt resolution plan.
Tapping into your home equity can provide extra cash for covering normal overhead costs, but that doesn’t mean that you should do it. This is a recipe for financial disaster given that it’s a short-term solution to a long-term problem. This is far different from simply cashing equity out because you’ve been laid off, injured, or your pay structure has changed. If you’re regularly spending more than you make, your equity shouldn’t serve as your cushion. This is a time for homeowners to revisit their budgets and find other, more dependable, ways to better manage their regular and ongoing expenses.
Homeowners are advised against using their equity to finance the purchase of unnecessary luxury items. If this is the only way that you can get the boat you’ve always wanted or a limited-release foreign automobile, now is probably not the best time for you to splurge on these things. Not only does this type of spending diminish the amount of value that you personally get from you home investment, but it also increases your monthly overhead costs. More importantly, it leaves you with little to no options should a far more pressing and unexpected expense happen to rear its head.
Irvine Residential Living is a leading Irvine real estate brokerage that’s been helping families find their dream homes for more than a decade. For more information or to schedule an appointment, please give us a call at (714) 454-6304.