The Best Way to Use a Home Equity Loan

Wednesday, October 21, 2020

Home Improvement with Home Equity Loans


With interest rates falling and home prices rising, it seems like a great time to tap into your home’s equity using a home equity loan. Many people would like to know what’s the best way to use these funds.


A home equity loan, or a HEL, can be a fantastic way to source extra funds during a falling-rates environment. Home equity is the positive difference between what is owed on a home and its current value. Tapping into your home’s equity provides the funds you need for a large expense with no additional strings attached.

With interest rates on a McCoy FCU Home Equity Loan at low APRs*, the repayment plan can be very affordable. If approved, you’ll receive the funds in one lump sum within a few days. There are no restrictions on how to use these funds. However, since you’re risking the loss of your home with this loan, choose wisely when deciding how to use them.

Here are four forward-thinking uses for a home equity loan:

1. Home improvements

One of the most popular uses for home equity is for home renovations and improvements. These can be as major as adding a 1,000-square-foot extension to your home, as minor as replacing old carpet with new hardwood flooring or anything in between.

Using your home’s equity for home improvement projects is a smart choice for multiple reasons. For one, the money you put into the renovations acts as an investment. If you choose improvements that increase your home’s value, you can make back the money you spent or even see a return when you sell your home. Are you planning to use the funds to increase your home's value? You may be able to deduct the interest paid on the loan from your taxes. Be sure to consult with your tax adviser if you plan to go this route.

If you plan to use your home equity funds for home improvements, be sure to choose wisely. Avoid blowing big bucks on superficial remodeling projects that may look dated just a few years down the line. It's best to go for improvements that add lasting value to your home.

2. Debt consolidation

Another popular use for a home equity loan is to consolidate high-interest debt. Paying off multiple debts at high interest rates can be cumbersome and difficult to manage. Worse, the heavy interest rates mean more of the borrower’s money goes toward the lender and less goes toward paying down the principal of the debts. Using a home equity loan to consolidate debt to a single, no-interest or low-interest loan can save thousands of dollars. It can also help shorten repayment time by several years.

3. College education

When interest rates are falling, funding a college education through a home equity loan instead of a high-interest student loan can be a smart choice. Similarly, homeowners struggling with student debt payments might want to use their home’s equity to pay off the debt quickly. At that point, they could replace it with a more manageable, low-interest loan. It’s important to note that paying off a federal student loan with home equity might not be the best choice. These loans are sometimes eligible for partial or complete forgiveness.

4. Emergency fund

Most of us know that financial experts recommend having three to six months’ worth of living expenses stashed in an emergency fund to be used if the need arises. But reality keeps this magical sounding fund a distant dream for too many people. If you’ve been struggling to get your own emergency fund off the ground, tapping into your home’s equity can be a great way to get that boost you need. You’ll have a large stash of cash to build your fund, and the manageable payment plan will help ensure you put money into savings each month. If you experience a financial emergency after taking out your home equity loan, you’ll already have the funds to help.

Before you take out a home equity loan

A home equity loan can provide homeowners with the funds they need for a home improvement project. It can also help them get their debt under control, pay for college or build an emergency fund. However, before making either of these moves, it’s important to run the numbers so you are sure you can easily meet the regular loan payments. Try our financial calculators to see if the numbers work for you.

If you’re ready to take out a home equity loan, look no further than McCoy FCU. Our rates and terms are always competitive. Give us a call or stop by your local credit union branch or get started on your home equity loan application online today.

* APR = Annual Percentage Rate – click to get the most up-to-date McCoy FCU Home Equity Loan at low APRs.

McCoy 10/21/2020