Taking on debt should always be done only after having carefully considered the consequences. Being overloaded can put a lot of pressure on you and considering the pandemic that is raging right now, it should be done with even more caution than ever.
That said, there are times when taking on debt is necessary. In fact, in some cases it can even be a good thing. The trick is knowing when you should take on the debt and when you shouldn’t. When it comes to a home equity loan or second mortgage, there are definitely some times when it makes perfect sense to take on the debt.
In this article, we look at four good reasons to take out a home equity loan.
1 – Home improvements
The most common reason, and also one of the best, is to make some renovations on your home. It could be to replace a leaky roof or foundation, or just to update the kitchen.
No matter what the improvement is, it is generally going to be a good thing to take out AMF Equity Loans in Vancouver or any other city where you live.
One of the biggest reasons that it makes sense is that you are doing some work on the house that needs to be done. After all, you live there so it should be in tip top shape so you can live there comfortably.
The second biggest reason to take out the equity loan is that the renovations are likely to add value to the home. If you plan to sell it one day then the loan may end up paying for itself in the increased value that you are able to sell the house for.
2 – Debt consolidation
When you have a lot of different loans from different lenders, it can get very complex and expensive to keep up with the payments. Often, credit card payments come with high interest rates. Likewise auto loans and other personal loans.
Then there are student loans to pay. In other words, you have a lot of different payments going out which not only are expensive because of interest rates, but when you add up the minimum payment, you end up with a very large number that has to be paid every month.
Lastly, when you pay the minimum, you end up paying far more over the course of the loans. The minimum payments usually are mainly interest so you have the principal not budging much. And this causes you to end up way overpaying by the time the loan is paid off.
When you consolidate your loans into one equity loan, you save a ton of money every month. And if you are having cash flow issues then this is the first thing you can do to solve them.
3 – Making investments
Sometimes an opportunity presents itself at seemingly the wrong time. An investment opportunity is a good example of this. When rates dip so low that it would be terrible to not take advantage by buying a rental property, for example. But, if it happens at a time when you have very little cash to take advantage then a home equity loan could be the best way to not miss such a golden opportunity.
Depending on the type of investment you can easily see returns greater than whatever interest you are paying for the equity loan. Whether you buy some stocks or index funds, or the aforementioned real estate. As long as it is an actual opportunity and not a fly by night get rich quick scheme.
4 – Your home value continues to increase
If the value of your home is on the rise and nothing, not even an economic crisis, is slowing it down, then that is a good time to take out an equity loan. If you ever plan to sell the house, then this is a great time to take out the loan.
When you do sell, the extra value plus the added value that you put in with renovations will add up to a nice bit of extra cash on top of what you borrowed.
Conclusion
Taking these things into consideration when you are taking out a second mortgage is essential so you don’t make the mistake of getting underwater on your home. You may be able to wait things out until the value does increase one day, but if you need to sell right away then it could spell trouble.