A home equity loan might be a good idea if you use the funds to make improvements to your home or consolidate debts with a lower interest rate. However, a home equity loan is a bad idea if it will overload your finances or if it only serves to change debt. Common options for accessing your home equity include a cash-out refinance, a home equity loan, or a home equity line of credit (HELOC), each of which can be used to cover everything from home improvements to debt consolidation, costs university students and even emergency expenses. Taking advantage of home equity can be a convenient and low-cost way to borrow large sums at favorable interest rates to pay for home repairs or debt consolidation.
A cash-out refinance may be a good idea if your home has risen in value. It's often the best option if you need cash right away and you also qualify for a better interest rate than on your first mortgage. Taking out a home equity loan can give you access to certain tax breaks that you don't get for borrowing on credit cards or car loans. Since home equity loans are a type of mortgage, the interest you pay on them is tax-deductible for most people who itemize deductions, within certain limits.
If you have at least 20 percent, the most common ways to take advantage of excess capital are through a cash-out refinance or a home equity loan.