When it comes to deciding if you should take a loan out on your mortgage, the answer is not always so cut and dry. In fact, there are several things that you need to think about first, and you primarily need to focus on what you will be using the money for.
Continue reading for a few scenarios in which it would be smart to do so, as well as some situations in which it more than likely would not be a good idea. If you decide that you do want to take a loan out on your mortgage, you would then have to learn how to apply for a home loan that will work for you.
You Will Use the Money for a Home Renovation
One of the main reasons why people take out home equity loans is to improve their homes with an expensive renovation. If that is your motivation for taking a loan out on your mortgage, then you are on the right track. The advantages to doing this include remodeling your house so that you can add value to it. When you are ready to sell, you will reap the rewards of your investment. So whether you want to add an extension onto your property, make major cosmetic changes, update the kitchen and/or bathrooms, finish your basement, add a garage, or make any other major renovations, taking out a loan will give you the funds to make your hopes for your home a reality.
Pay for a College Education
Rather than taking out a student loan with a very high interest rate, you may be able to borrow money more affordably to pay for your own college education or that of your child if you take out a home equity loan. Also, the maximum amount of money that you can take out for your loan can also typically be higher than what student loans would provide. As with all other cases of taking a loan out on your mortgage, you just need to be sure that you will be able to comfortably pay back the loan in time. The last thing that you want to do is put your child through college only to find that you can no longer afford paying for your own house.
You Will Pay Off Your Credit Card Debt
If you are planning on paying off your credit card debt, your car loans, or any other forms of personal debt by taking a loan out on your mortgage, you should think again because this really is not a good idea after all. Even though it might make sense when you crunch some numbers, it ultimately will not cure your problem when it comes to accumulating credit card debt unless you actually change your spending habits or dramatically cut back on your spending. Also, unless it is absolutely necessary, it is usually a bad idea to free up unsecured credit card debt for secured home loan debt.
You Will Use the Equity for Your Retirement Income
If you do not have a lot of money saved up in a retirement account, it may be tempting to take out a home equity loan so that you can have money throughout your retirement. Some retirees will successfully meet their existing income requirements by doing so, but there is a risk involved with this strategy because that same retiree will also have to make payments on the loan itself. This means that, if you were to take this route, you will probably have to cut back on your spending elsewhere, or you will have to borrow more money elsewhere. This can lead to a downward spiral. What you can do instead is take out a reverse mortgage, which does not require making payments because the loan will be repaid when you move out, when the house is sold, or when you pass away.
With the information above, you can come to the right conclusion if you are thinking about taking out a loan on your mortgage. Remember that borrowing money against your house will only cause you to have to pay it off for longer than you originally anticipated, so this is not a decision that you should take lightly.