The Smartest Ways to Use Your Home Equity Loan
Published 15 July, 2021
Credit: jarmoluk Via Pixabay
With vaccination rates up and cities starting to return to a more normal state of affairs, many Canadians are celebrating their new freedoms by taking stock of their financial situation and exploring long-deferred plans to get debt under control and make improvements to their homes and property.
This often means borrowing money, and for thousands of homeowners, taking out a home equity loan is one of the best ways to borrow in a smart and sustainable way.
But in order to make the most of your home equity loan, you also need to understand how to put the money to the best possible use. To that end, here are the three smartest ways to put your home equity loan to work.
1. Consolidating Debt
According to the latest figures from Statistics Canada, the Canadian household debt ratio rose to 170.7% by the end of 2020, a worrying sign that Canadians are taking on more debt than they can handle.
Debt is a major financial drag on homeowners, tying up money that could be used for investments and retirement savings, and one of the best ways to start getting out of debt is debt consolidation — the process by which a number of smaller, high-interest debts are replaced with a single, lower-interest loan.
Home equity loans are a smart way of funding debt consolidation, as they provide a form of secured debt that can give homeowners access to large amounts of capital at lower interest rates, and mortgage brokers who specialize in residential home equity loans are ideally situated to help you start working toward a debt-free future.
2. Financing Repairs
Though it is worth it in the long run, it’s no secret that owning a home can be very expensive. In addition to your mortgage payments and property taxes, you also need to pay for maintenance and repairs, which in Canada can be a major undertaking. While homeowners’ insurance can help cover emergency costs, if you want to be proactive about installing a new roof or fixing foundation problems, you may need to pay some of the expense out-of-pocket.
A home equity loan helps you pay for repairs to your home using the value you’ve already built up in your home, making it one of the safest ways to borrow money to finance maintenance work.
3. Renovating Your Home
Most financial experts will advise you to only borrow against the value of your home if doing so will help improve your overall financial situation — using home equity to fund a post-pandemic vacation is not a good use of your money.
But that doesn’t mean your home equity loan can’t be used as an investment. Building an addition onto your house, finishing your basement, renovating the kitchen, or even just installing skylights will make your home more comfortable and pleasant to live in, but they will also improve the value of your home over the medium and long term.
If you have big plans your post-pandemic life and need to find a way to fund them, home equity loans are one of the best tools you have to get started. Get in touch with a local mortgage broker today to start exploring your options.