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How to use your Home Equity Loan

Borrowers use home equity loans for some of life’s larger expenses, because homes tend to have a lot of value to borrow against .

People borrow against their home's equity for myriad reasons. The two most common are to pay for home improvements and to consolidate debt.

Other uses for equity money: to pay tuition, medical expenses, living expenses during unemployment, and big-ticket purchases.

Ways to use home equity loans and lines of credit

  1. Reduce monthly payments by consolidating debts on credit cards and other consumer loans, lowering the interest rate, and exchanging compound interest for simple interest
  2. Reduce your tax burden by exchanging nondeductible interest (such as interest on credit cards and car loans) for loan interest that may be fully tax deductible (see your tax advisor for complete details)
  3. Get better terms on a home purchase or refinance loan by using home equity as part of your down payment
  4. Get ready cash for investment opportunities, unexpected purchases or emergencies as they come up (lines of credit only)
  5. Take cash for a specific reason, such as remodeling, college tuition, a new car, or a vacation

Using equity loans to consolidate debt and lower your monthly payments

Here's an example of how you could use a Home Equity Line of Credit (HELOC) to pay off credit cards and other consumer debts. It's a great way to give your monthly budget some relief.

   Balance  Annual Percentage  Minimum Monthly Payment
 Bank Card #1  $ 2,500  16.9%  $ 63.38
 Bank Card #2  $ 4,500  16.9%  $114.08
 Store Cards  $ 3,000  19.8%  $ 76.24
 Auto Loans  $15,000  10.8%  $324.64
 Personal Loans  $10,000  11.8%  $262.36
 Total  $35,000    $840.70
$35,000 Home Equity Line of Credit
 APR  First Year Monthly Payment
(interest only)*		  First Year Monthly Payment Savings*  Total First Year Savings
 10.375%  $302.60  $530.24  $6,459.00

The chart above is an example only. Please consult your lender for exact rates and amounts.

Home Equity Pros & Cons