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What Can You Buy With Your Home Equity?

a bunch of hundred dollar bills in the shape of a house

Image source: The Motley Fool/Upsplash

So, you bought your home before the pandemic, or maybe you just had a remarkable down payment and now you’ve got a ton of equity in your home. Sure, you can sit on it and wait for it to grow like a lot of people do, but that’s not all you can do with your home equity.

You can also spend it. I mean, don’t go on a mad shopping spree at the local mall, but there are times when using a home equity loan for more than home repairs makes financial sense.

Here are three surprising things you can buy with your home equity that might be good financial moves.

1. Another house

Wait, you can use your house to buy another house? Yes, you sure can.

Depending on the price of homes where you live, and the value of your current home, you may be able to tap your equity sufficiently to either buy a much cheaper home free and clear, or to have a decent down payment on another home.

This is handy if you want to move, for example, without the hassle of having to live in your house while you sell it, or much more useful as a way to start a real estate portfolio. That down payment from your home’s equity can make it easier to afford a rental home or buy a multifamily property like a duplex or small apartment complex.

If you can’t tap enough equity to pay outright, it’s OK. Choose one of the best mortgage lenders out there, like those on our curated list here, and you’ll have lots of options when it comes to making the numbers work out.

2. A vehicle

Stay with me here, I know this sounds like a terrible idea on the surface, but a home equity loan may carry a better interest rate than a car loan, especially if your credit is borderline. This could mean that borrowing against your equity is a more affordable way to get into your next car, rather than taking out an auto loan. (You also won’t have to have full coverage insurance if you don’t want it).

By choosing to use your home equity, you’re not beholden to what the bank wants to loan you, so you have more options, and can even buy restored classic cars or cars that might be older, but with low miles, like the Mercury Grand Marquis I bought my ex-husband years ago. That car was 10 years old, and practically brand new — the woman who owned it only drove it to the market and to church on Sunday. The rest of the time, it was in the garage. The leather even smelled brand new. Yet, the bank was not thrilled about loaning money for it.

If you choose to go this route, make sure to keep the term of the loan in mind, and make it as short as possible, or plan to pay extra, so you don’t end up spending more than you would with a car loan due to the longer timeline.

3. An education

If you’ve been planning to pay for your child’s education, or you’re looking for a way to help them finance it themselves, tapping your home’s equity to pay for a college education isn’t the worst idea.

Student loans can have very high interest rates if your children don’t qualify for subsidized loans, or if they need private loans to get through their degree. Your home equity loan, on the other hand, is a secured loan that may carry a much lower interest rate than they will be offered by their student loan servicer. Just like with using your equity to make your own car loan, keep the term as short as possible so neither you, nor your child, is mired in debt for the long term.

Check here to see a list of our favorite mortgage refinance lenders, many of which can make home equity loans, along with full refinance loans.

Your home equity can save you money on more than a new bathroom

Even though a lot of people use home equity to do projects around the house, you don’t have to. You can use yours to save money on your next vehicle, get an education, or even start a real estate portfolio. The sky’s really the limit, but whatever you do, use your home equity wisely.

There is one caveat: You may not be able to deduct the interest from your home equity loan if you don’t use it to pay for things for your primary residence. A lot of people don’t itemize when they file their taxes, though, and if you don’t, this might not make any difference to you.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
Motley Fool Money does not cover all offers on the market. Editorial content from Motley Fool Money is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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