Are Home Improvements the Only Thing You Can Use a Home Equity Loan For?

Spoiler alert: no.

Being a homeowner has its drawbacks, including the many expenses of homeownership, but it's still something that many people aspire to. Not only do homeowners get more security and predictability in their living situation, but they get to reap the benefits of paying off a mortgage on an asset that can then be borrowed against. Your home equity is the market value of your home minus the amount of money left owed on your mortgage. For example, if your house would sell for $400,000 and you still owe $150,000 on your mortgage, you have $250,000 in equity. And you can tap that in the form of a home equity loan.

Thanks to the jump in home values this last year, homeowners have been privileged to enjoy higher than ever home equity. And as the cost of living has increased, along with interest rates as the Fed attempts to stop the bleeding of inflation, homeowners with substantial home equity are in a great position indeed. Many people think that a home equity loan can only be used for home improvements; after all, you're taking a lump sum of money out of your home. But as it turns out, you can use a home equity loan for anything you want.

What might you do with a home equity loan?

There are so many ways to use money you take out of your home in the form of a home equity loan. Got some credit card debt to pay off? Maybe you have a child you want to send to college. Or hey, maybe you really do want to gut your dated ugly kitchen and turn it into the entertaining hub of your dreams. All of these possibilities can be yours with a home equity loan.

Are there other options to borrow against your home?

If you're sitting on a pile of home equity, don't think that a home equity loan is the only way to get at it. You might also consider a home equity line of credit (HELOC). A HELOC is a revolving line of credit that you can use, and it comes with a set time period and often variable interest rates. The rates are usually lower than what you'd get with a credit card, but that variability is one strike against HELOCs; if your interest rate rises, it will be more costly to pay back. But you do get the flexibility of deciding when and how much to spend with a HELOC.

Another thing to consider is a cash-out refinance. With a cash-out refinance, you're borrowing money to pay off your current mortgage and replace it with a new one, and taking extra cash out in the process. These loans could be fixed or variable-rate loans, but you are borrowing a fixed amount upfront.

Is a personal loan a better idea?

If you don't want to tap your home equity, you could consider a personal loan instead. Personal loan funds can also be used for anything you want, and they are often much faster to get than any kind of home equity loan or line of credit. The amount you can borrow varies as well, with some lenders offering loans of as much as $100,000. An unsecured personal loan can be more difficult to qualify for if your credit is a little shaky, though. This is because you're not securing the loan with collateral that can be taken by the lender if you don't make your payments. However, with a personal loan, you'll have the peace of mind in knowing that your home isn't potentially at risk if you fall behind on your payments.

If you're a homeowner with some equity built up, you have more options to borrow money than those who rent. And since you can use that money for any purpose, carefully consider all your options to choose the right borrowing option for you.