If you choose to tap into your home equity (for example, with a cash-out refinance), then you’ll likely think long and hard about how exactly you want to leverage those funds.
Many homeowners choose to take cash out of their equity and invest it back into their financial future (therefore generating more wealth over the long term). Others choose to invest more into their quality of life, paying for costs such as family vacations, weddings, or travel.
How you choose to use your home equity is up to you. But it is a big decision that shouldn’t be taken lightly. Let’s review some of the common ways that homeowners choose to leverage their home equity.
Key takeaways
- What are the common uses for tapping into your home equity?
- Understanding the difference between investing in your financial future VS investing in your quality of life
- Why it’s a good idea to consult a financial advisor before deciding how you choose to leverage your home equity
Debt Consolidation
A common reason for taking cash out of your home equity is debt consolidation. Many Americans are burdened with high-interest credit card debt. But tapping into your home equity can help you to pay off that debt and save more money over the long term on interest.
Home Improvements
Your house may very well be your biggest asset, and renovating your home can be an investment that simultaneously improves the quality of your daily life.
Updates such as newer, more energy efficient appliances, adding an extra bathroom, a fence or a deck, these sorts of renovations may raise the property value of your home while also creating a more enjoyable space for you and your family.
Emergency Expenses
One of the great things about building equity in your home is having the option to take cash out to cover emergency expenses such as medical bills. Home equity is often compared to a built-in savings account, because it gives you peace of mind knowing you have the option to take cash out in case of emergencies.
Investments
Whether it’s investing in your business, stocks, or more real estate, taking cash out to invest may give you the momentum you need to generate more wealth over the long term. If you choose to take cash out of your equity in order to invest, you may want to talk to a financial advisor for more guidance on how to create a better financial future for yourself and your family.
Tuition Or Education Costs
Another common use for tapping into one’s home equity is investing in college tuition or higher education, whether it’s for yourself or a family member. In this case, consulting with a career advisor may be a good idea to ensure you’re choosing the right education path that will pay off in the long run.
Major Life Events
The last common reason for tapping into one’s home equity is to pay for major life events such as weddings, family vacations, or travel. While these types of expenses may not necessarily grow your financial wealth, making happy memories with your family may be well worth it to you. Just don’t forget to take plenty of pictures!
Uses For Home Equity: The Takeaway
Some homeowners choose to invest their equity back into their home, their businesses, or to relieve the burden of high-interest credit card debt. These common uses for home equity focus more on improving one’s financial future and generating more wealth over the long term.
But in addition to improving one’s financial future, there’s also the overall quality of life to take into account. For example, paying for a wedding or vacation may not increase someone’s net worth, but it may be well worth it to create those happy memories with family and friends.
When deciding exactly how you want to leverage your home equity, don’t take this decision lightly. You may want to speak to a financial advisor to ensure that you’re using your equity in a responsible way that will make a real, positive impact on your financial future and/or quality of life.
