Home equity loans have many uses. These include:
- Debt Consolidation: Having multiple ongoing loans at varying interest rates can unnecessarily complicate your financial management. Many people use their home equity to pay off these extraneous loans and thereby transfer the balance of their debt load to a single stream with a favourable interest rate.
- Mortgage Refinancing: In a similar vein, home equity can be used to improve the terms of one’s mortgage by paying off the original mortgage with a lump sum. This can free up cashflow, reduce monthly payment amounts and/or reduce the term of your mortgage.
- Acquiring Property: Using your existing home’s equity to buy another home can be a smart decision when the opportunity arises to increase your property investment portfolio. For example, you might buy a second property and rent it out, creating a powerful new income source.