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5 Smart Ways to Use Your Home Equity

By U.S. News & World Report

Cash-strapped middle class families may be richer than they think. Or at least, that could be true if they have owned a house for a while. Equity in a home — that is, the value of a property in excess of any mortgage balance — can be a powerful financial tool if used correctly.

Home equity loans allow you to use your home equity to finance other expenses. “The thing I like about home equity is that it can let a person live out their dreams,” says Vince Liuzzi, executive vice president and chief banking officer for DNB First. However, tapping into equity can also be a recipe for disaster if not done properly. “It’s very important to have a committed, disciplined approach to what you’re going to do with that capital,” says Ryan Boykin, cofounder of Atlas Real Estate Group in Denver. Blowing it on a vacation, for example, can leave you in debt and without anything to show for it.

For those who are ready to make the most of their home equity, here are five options recommended by experts.

[See: 10 Ways to Reduce Your Housing Costs in Retirement.]

Finance an expensive purchase. Using home equity to pay for a major purchase can make financial sense. Home equity loans often have low interest rates, and interest payments are typically tax deductible for those who itemize their federal return. The danger of using home equity is that a borrower might be tempted to extend the repayment period. While a new car loan usually has a five- to seven-year term, a home equity loan can run 10 years or longer. “When you get into them, you have to have a plan to pay them off,” says John Gajkowski, co-founder of Money Managers Financial Group in Oak Brook, Illinois. Otherwise, “the car ends up costing you a fortune because of the carried interest.”

Buy investment properties. Boykin is an advocate of opening a home equity line of credit in order to be able to pounce on investment opportunities as they occur. “It provides the flexibility to get into a deal that you couldn’t [otherwise] get into,” he says. Rental properties, in particular, may only be available to those who are able to make large down payments. Having a home equity line of credit open in advance means buyers can quickly access the cash needed to close a sale. However, Boykin isn’t sold on the idea of using home equity to buy other investments such as stocks and bonds.

[Read: The Best (and Worst) Reasons to Tap Your Home Equity.]

Improve your home. One of the more common ways to use a home equity loan is to make renovations or upgrades to a property. “There is an opportunity for a return on investment,” Liuzzi says. “You’re improving an appreciating asset.” However, experts caution against funding a home renovation for financial gain alone. While improvements can increase the value of a house, homeowners almost never recoup their full cost. Instead, use equity only for renovations that will give you greater enjoyment or longer use of the property. For instance, making a house more accessible so you can age in place or adding a room for a new child so you won’t have to move can both be smart uses of home equity.

Pay for long-term care. Cash-poor but house-rich seniors may be able to pay for long-term care expenses with their home equity. Reverse mortgages are specifically designed to provide older Americans with an ongoing source of cash, but they can be complex and restrictive. Regardless of whether a senior uses a home equity line of credit or a reverse mortgage, Boykin urges people to be practical when it comes to using capital for this purpose. “I am not a fan of getting a home equity loan and using it for daily expenses,” he says. For some, it might make more sense to simply sell the property and downsize or move to somewhere more affordable.

[See: How Much You Need to Buy a Retirement Home in 10 Cities.]

Ride out a market downturn. The shift from traditional pensions to 401(k)s and IRAs means a retiree’s nest egg is often subject to the whims of the market. Having a home equity line of credit waiting in the wings can help limit financial damage during a recession. “If you hit a hiccup in the market, rather than draw down a depressed portfolio, we can use money from the [home equity],” Gajkowski says. As with other investments, this strategy typically works best if you already have a line of credit open. While there is a setup cost, it can be worthwhile if it allows you to access cash immediately. “It’s a tool in your tool shed that you can use when you need it, but you don’t have to,” Boykin says.

Borrowing against your home equity isn’t something to be undertaken lightly. However, when used for one of these purposes, it can be money well-spent.

More from U.S. News

10 Tips for Finding a Great Place to Retire

How to Reduce Your Tax Bill by Saving for Retirement

10 Ways to Celebrate Your Retirement

5 Smart Ways to Use Your Home Equity originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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