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There can be a lot of confusion about home equity loans, its benefits and why one should consider it. A home equity loan is simply a type of loan that allows a borrower to use the equity of their home as collateral.

There are some Good Reasons for a Home Equity Loan

It comes down to responsible borrowing but for those in a serious pinch, this type of loan makes a lot of sense. In certain cases, and used properly and strategically, it can even provide a return.

This is a Great way to Tackle Home Improvement Projects

A home equity loan to improve your home is smart if you’ve done your homework and the renovations improve or fix an aspect of your home. Renovations can be pricy and most cannot go out of pocket for them. This is one of the main reasons that this type of loan exists and is worth considering.

If your home has increased in value, then you’ll have even more equity to borrow against in the future.

A Home Equity Loan can give you a Pool of Cash for Investing

Investing is an acceptable but less popular reason to apply for a home equity loan. You can borrow against the equity of your home at a low rate and then use that money to invest. Obviously, this is only recommended for those with experience, knowledge and a proven track record.

Paying for an Education

Many people struggle to pay for their education or for their children’s education. Even in Canada, where it is subsidized, it can be daunting. A home equity loan can help ease that burden, and while there are risks associated, it can pay off in the long term.

A Medical Emergency could Require a Quick Cash Infusion

As opposed to other loans and line of credits, a home equity loan to deal with a medical emergency is justified. It is also a much better idea to apply for this kind of loan than putting these types of expenses on a credit card.

And that brings us to Credit Card and its Debt

Borrowing against the equity of your home to pay off credit cards is never advisable. It is not considered a cure for consumer debt, especially considering that credit card debt is unsecured.

There are a lot of strong reasons to borrow against the equity built up in your home, and the best advice is to speak with the trusted professional.

Renovating a house or office is a pain. There’s no way around it. The space becomes a construction site, there’s a constant stream of workers entering and exiting and you will most likely experience at least one if not several delays.

In the long run, there’s a lot of benefit to undergoing a renovations project even if the short-term pain is significant.

Renovations can add a ton of Value to your Property

Just about any upgrade to your house can immediately increase its overall value, especially if it’s more than cosmetic. New appliances, floor or carpet refreshes or a room renovation that modernizes or makes it more functional are all investments that should provide a return when you sell.

Some Renovations are better than Others

If you want to feel the value that renovations can make to your home than focus on the kitchen. This is the room that can have the largest impact. Before demolition, do your research to find out which kitchen trends are popular.

Small Touches Can Transform a Space

Most people focus on the large overhauls for houses and offices but sometimes the lighter touches can be the most dramatic. Something as small as under cabinet lightning can make a big difference to a kitchen. Replacing laminate flooring with hardwood can completely change the atmosphere of a room. Get creative and consider millwork and finishes as much as the bigger items.

Focus on Modernity but There’s a Caveat…

The question to ask yourself when renovating is does this reflect modern tastes and sensibilities. Even if something is meant to be kitsch or retro it can still reflect what is on trend. While renovations today might look dated in 10 years, you should consider when you might sell and speak to contractors about how easy future updates might be.

Renovating takes a savvy mind and a lot of patience. If you can withstand the psychological trauma that might come with the experience, you could be find your pockets lined with a healthy return on your investment.

There are lots of great reasons to apply for a home equity loan. Some of the more popular ones are renovations or a medical emergency. One of the lesser known reasons that people look to a home equity loan is to buy investment properties.

Is this a good idea? It’s not a straightforward answer so let’s look at the pros and cons.

Should People use their Home Equity to Invest?

A property owned for the sole purpose of being flipped or rented can be a great investment especially in a market like the GTA. Using a home equity loan to fund this type of venture is a hit or miss proposition based on the competency of the applicant. Most industry professionals will tell you that using your home equity to fund a side business or investment is a good idea.

Pro: If you have the Right Experience and Personality then you could find Success

Rental properties can provide a steady income and even pay for themselves if you put in the proper work and buy in the right neighbourhood. If you focus on the numbers and not the emotion or delusions of grandeur you could experience a very healthy return on your investment.

Pro: One of the more Stable Markets

The housing market in the GTA has proven to be strong year over year. Very few markets can make the same claim of stability so if you’re looking for a sound investment and the chance to put in a little elbow grease than an investment property is might be your calling.

Con: Every Market has some Volatility

There’s always volatility within the market and you must be prepared for the long haul. Whether you’re flipping or renting, it’ll take time to make your money back. With all investments, a realistic approach is best.

Con: There could be Trouble if you don’t Flip or Rent Fast

Not only will you have to pay the down payment you’ll also have to cover all the costs associated with buying a home. If you can’t flip or fill it fast you might be paying for two homes which for most can be strenuous.

The best thing to do is sit down with a trusted professional and decide if a home equity loan for an investment property is right for you.

House Hunting is tough, there’s no doubt about it. It’s stressful and time consuming and there’s a lot to know if you want to do it right.

Here’s some dos and don’ts that can help guide your hunt and make sure you make an offer with confidence on the best home for you.

Do set a Budget

A lot of hunters think that a few thousand dollars paid over 25 years is so big deal. While you shouldn’t let your dream home slip away, every dollar counts and there will be interest paid on every dollar borrowed for the purchase. It’s okay to be flexible but still wise to set a budget.

Do Invest in a Home Inspection

You need the trained eye of a professional to inspect the plumbing, appliances and to determine if there’s any lingering problems or potential ones on the horizon. The average person doesn’t have this knowledge or these skills, making a professional home inspection a worthy investment.

Do Shop for a Rate

The interest rate and associated terms are crucial to your financial health so make sure you are getting the best deal. To do this, you need to shop around and be well informed about the future prognosis of mortgage rates to see if waiting a bit makes sense.

Don’t Trust Every Word of a Listing

Listings are ads. They are designed to intrigue and entice, to compel the reader to take the next step. There’s also a lot of grey area and it’s easy for agents to play with wording. How new do “new appliances” have to be for it to be accurate? Impossible to answer and those who craft listings know that.

Don’t Overbid just for the sake of Winning

Bidding on a house or condo is thrilling. The anticipation can be a rush and that moment where your bid is chosen is a feeling of total euphoria. It’s important to know that while winning is great you want to pay fair value, which means curbing any impulses to blow your opponent out of the water.

The biggest do of all is to surround yourself with knowledgeable professionals that you trust and who can guide you on what to do and what not to do, helping you come out on top.