As you make payments toward your mortgage, the equity in your home will increase. Using a home equity line of credit, also known as a HELOC, can help you tap into that equity and use your home’s value to your advantage to pay for larger expenses. While a credit card or personal loan can cover small costs, a HELOC can help you tackle larger projects or unexpected expenses by using the equity you’ve worked hard to build.
One benefit of a home equity line of credit is that the funds are revolving, meaning you can borrow a sum of money, pay it back, and borrow against your home’s value again without needing to open a new loan. Read on to learn more about smart ways to use a home equity line of credit.
A common use for home equity is to put it back into your home. You can use your home’s existing equity to upgrade or add-on features, which in turn increases your home’s value over time. When planning a home renovation, think about the future. While a new kitchen might be what you want now, if you plan to stay in your home through retirement, you may need to add on a first-floor master bedroom or renovate a bathroom to be more accessible. Using a home equity line of credit can help you pay for large home renovations now and in the future without depleting your savings.
One of the most practical reasons to use a home equity line of credit is to consolidate debt. Oftentimes, the interest rate on a HELOC is much lower than the interest rates on your existing debts, especially credit cards. If you feel overwhelmed by your debt or your monthly payments are too high, consider opening a home equity line of credit to consolidate your debts into one payment. Before you take this step, make sure you can afford your new monthly payment and aren’t tempted to rack up additional debt on your existing cards after your consolidation.
If you’re sending a child to college or considering pursuing additional courses for yourself, you may want to use a home equity line of credit to help cover the cost of tuition. With education expenses, they’re often recurring each year, which makes a home equity line of credit a great choice. You can borrow what you need each year instead of applying for new loans every semester or taking out a large lump sum at once. Oftentimes, interest rates on a HELOC are lower than rates on unsecured student loans, too.
If you’re facing a looming medical bill or are trying to catch up on unexpected medical costs, a home equity line of credit can help. Because the loan is revolving, you can borrow what you need now and tap into your home equity line of credit in the future if you’re faced with additional costs. Using your home’s equity to your advantage will help reduce the need to rely on other forms of high interest debt, like credit cards.
In addition to medical expenses, you may be faced with an emergency and not have the funds available to cover the cost. With a home equity line of credit, you can access the money you need, when you need it. By opening a HELOC now, it can act as an additional emergency fund to supplement your savings. Because the line of credit is revolving, you don’t need to borrow funds right away but can quickly advance what you need if an emergency arises.
Borrowing against your home’s equity can help you reach goals and provide peace of mind. When applying, remember there are limits on what you can borrow based on your home’s value and you’ll be using your home as collateral, so you’ll want to be sure your new monthly payment fits in your budget. If you’re unable to make your payments, the lender can take possession of your property.
Typically, a home equity line of credit will have a variable interest rate, meaning the rate could change at any time. With our HELOC Plus option, you’ll get additional perks like fixed and variable advances. A fixed advance will allow you to lock in your interest rate when you borrow.