Buying a house is a major decision to make. Whether you are interested in Arizona real estate or some other area, it is the single most expensive purchase that most people will make in their lifetime. It will put you in debt for the next 30 years so the decision to buy shouldn’t be made lightly. Once you do buy there are still more decisions to be made.
For instance, when you build up some equity, you could take that out of the house in the form of an equity loan. There are times when it makes perfect sense to do this even though you are increasing your debt. In this article, we will go over some of the times when it makes sense to take out an equity loan.
1 – Making home improvements
As your house starts getting older there are going to be some inevitable repairs and maintenance that will need to be done. These repairs are also likely to be expensive especially if your house is old.
The best way to pay for these repairs is not to use your savings. Taking out an equity loan is the most logical way to pay for these repairs. Since you have some added value in your house at this point, then that is what you should pay for the repairs because as time passes your value will continue to increase.
The repairs themselves are also going to add value to the home and increase the value. You may want to use this loan if you are planning to sell the house since those repairs will help you get even more for it than without.
2 – Real estate investments
Even though interest rates are much higher now than a few years ago it is a great time to buy more real estate. The housing market is hotter than ever right now but it doesn’t have the tell-tale signs of a bubble.
There are fewer new construction units available so with less inventory the values are skyrocketing. This makes a real estate investment a very good way to go. In fact, since the stock market has been unstable and there may be a recession coming, putting money into the market may not be wise. Buying a rental property on the other hand is an almost guaranteed way to bring in a steady amount of money per month.
Use your equity to put money down on a new property to rent out and you’ll end up with a free house after a few years.
3 – Consolidating debt
If you have gotten into some trouble with credit cards or a car loan that is upside down then an equity loan may be your best bet. It is usually not a great idea with interest rates so high, but since credit card debt and car loans are going to have a much higher interest rate it could make sense to use your equity to pay those loans off.