There are some attractive benefits of using your home equity to help you put some of your financial worries aside. When you’re struggling to pay back student loans, high-interest payments or medical bills, it may be time to consider refinancing or using a Home Equity Line of Credit (HELOC) to pay it all off. Here are 5 ways to consider using your home equity.
Pay Down Your Tax Debt
If you have a large debt owing to the CRA, you might not be able to take out a new line of credit or have an investment to sell off in order to pay it down. However, you might be able to tap into your home equity to eliminate your tax arrears. If you already have a HELOC and there is room to pay this debt off, it might make sense to use this avenue and clear up your debt with the government for good.
Clear Your School Debt
If you’re like most Canadians who have attended university or college, you likely have some student debt still hanging over your head. A home equity loan can also be used to pay off your school debt. If the interest rate is lower than that of your school loan, it makes more sense to use the available money from your equity now instead of continuing to pay the high-interest fees.
Consolidate High-Interest Debt
Do you have a number of debts to pay off, such as a line of credit, car loan, or credit card fees? Only making minimum payments and never seeing your balances decline? You can save a lot of money by consolidating your high-interest debt into your mortgage or into a HELOC. In most cases, your interest rate on your home equity loan will be a lot lower than your other loans. This will allow you to pay your debt back faster with one more manageable payment.
Act as Your Emergency Fund
If you or your spouse suddenly lose your job, or you are suddenly faced with an unexpected injury or illness, you’d likely have to tap into your emergency funds to keep afloat while you search for new employment or recover. However, not everyone has enough money saved to cover all their expenses. This can result in unexpected credit card debt and maxed out lines of credit in an already stressful situation. Having a HELOC already set up and available to access for when you need it as a short term emergency fund until you can get back on your feet can help remove additional stress.
Finance An Investment
Having access to your equity through a HELOC already available can help you when the right investment opportunities present themselves. Whether it is topping up your RRSP’s to take advantage of a tax break, investing in the stock market or buying an investment property and using your equity for the down payment. Having easy access to your equity is reassuring you don’t miss an opportunity.
A home equity loan can be a useful tool to pay off debt and consolidate, but it’s not always the right choice for everyone. Before you decide to tap into your equity, make sure it’s worth it. Talk to one of our mortgage advisors to ensure that you are making the right decision and are not taking on any unexpected risks with your home.