First determine what type of loan you need.
- Fixed-rate home equity loan: If you are needing a large lump sum of cash this is best. It will lock in your rate and you will have fixed payments for the life of the loan.
- Lines of credit (HELOC): If you are planning to need smaller amounts of money over a larger span of time, this may be the better option. Be aware though, as the market changes, so will your interest rates.
What can you use it for?
- Home improvement. U.S. News explains that this is the safest use of your funds. What you are putting into your house to make it better, you are gaining in overall property value. Though you still have to make payments, you are essentially breaking even [1].
- Consolidating debt. Combing your debts into one payment can be helpful if you are a responsible borrower. You could potentially pay off credit cards while having a lower interest rate and an option for tax deductions.
- Paying for college. There's the option of taking out a second mortgage to help pay for your child's schooling. This can also be used if you or your spouse are considering to go back to school.
- Buying leisure items. Buying a boat or a new outdoor grill can rack up a high price. If you're using a line of credit, you could use your equity to pay for these things up front and pay back on a lower interest rate than a credit card. Be careful though-don't start buying things expecting that you'll come up with the money somehow. Make sure that you have the means to pay it off on time.
BE AWARE
A second mortgage can be helpful when you need a little extra money to help pay for something big, but be aware that you are treading in risky waters. If you fail to repay your loans, you can lose your house. So budget before you take out any loans to ensure that you have enough steady income to pay back what you are taking out.
Sources:
[1] The Best (and Worst) Reasons to Tap Your Home Equity
Home-Equity Loans: What You Need To Know, Investopedia
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