Save By Using Home Equity
The most common uses of home equity are home improvement and debt consolidation, but did you know you could save money on other large expenditures? Here are some less common ways home equity can help you save.
Use it to buy a car. Depending on where interest rates are, a home equity loan or line of credit may have a lower interest rate than an auto loan. Let’s say you are buying a $25,000 car and the financing company offers you a rate of 8 percent for five years. Your monthly payment would be about $507 a month. With a home equity line or loan at 7 percent, your payment would be $495. But even if the difference in the monthly payment is negligible, the interest you pay on a home equity loan or line of credit is usually tax deductible, so be sure to factor that advantage into your calculation.
Use it to pay for tuition. Even public universities are now costing around $50,000 for four years. If you find what you’ve saved for your child’s college education is no where near enough, consider using your home’s equity to make up the difference. It may not be as cheap as a student loan, but unlike a student loan, it is usually tax deductible.
The bottom line. Your home’s equity can be used for any purchase or expense, small or large. However, a good rule of thumb is to use it for a large, one-time expense. And remember, it’s your house that’s the collateral – so if for any reason you fail to make your payments or default on the loan, you could lose your house.
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