May 7, 2023
Once you’ve built up enough equity in your home, or the value of the percentage you have paid off, you can convert some of it to cash. A home equity line of credit (HELOC) helps many homeowners reach financial freedom by using it to pay for things like student loans, credit card debt, and large home improvement projects. However, these are just some of the most common ways that a HELOC can help. While you should be savvy and make a plan when you borrow a line of credit, it is important to know all your options. Here are some creative ways to use a home equity line of credit.
1. Sell and use the profit to upgrade to a new home.
Are you ready to move out of your current home and into new one? Selling your current home in a seller’s market after building up equity could help you into the home of your dreams.
2. Pay for new construction.
If you have your sights set on a new build, using your home’s equity might be the best choice to fund the work. Traditional construction loans come with a lot of red tape and qualifications as building plans, estimated schedules, and budgets must be provided in advance. A HELOC can offer flexibility as needed, as well as a lower payment structure, since you only pay for what you spend.
3. Fund assisted living and long-term care.
Assisted living and nursing home expenses can be extremely costly. Leveraging a HELOC can help with the cost of long-term care, and allow your loved ones to maintain their independence as long as possible
4. Complete a home exterior makeover.
Bump up the curb appeal and the value of your home by giving the exterior a makeover. Remodeling structures like entry doors, garage doors, and exterior siding can add major value if you ever decide to sell.
5. Adjust rooms for your new work-life balance.
As more homeowners opt for hybrid or remote work, investing in upgrading your current work space can help create an optimal work-life balance.
6. Add more efficient features to your home.
Adding specific features to your home can add serious value without undertaking a large remodel. Improvements like replacing windows, swapping out older appliances, and adding energy efficient features are all smart ways to use the equity in your home.
7. Fund a passion project.
A HELOC can be a great way to fund some of your passion projects like starting a new business, building furniture, or maybe even restoring old cars and boats.
8. Cover legal fees.
Life can be unpredictable and opening a HELOC can help buffer against legal fees from unexpected life events like divorce, child custody, an arrest, or even business litigation.
9. Fund wedding and honeymoon expenses.
While we recommend adjusting and limiting your spending for the big day, it might make sense for some couples to take out a HELOC to cover wedding and honeymoon expenses. A traditional wedding loan can have very high interest rates, so opting to use the equity in your home might open up some extra cash flow.
10. Open a line of credit just in case.
A HELOC can be helpful in emergencies because it has a revolving line of credit that you can use whenever you need. You can use most HELOCs for up to 5 to 10 years (this is referred to as the draw period). You only have to pay back what you use, so if you never touch your funds, you never have to pay interest.
When not to use your home equity
The main reasons to opt for a HELOC are when the purchase or project adds significant value to your home, places you in a better financial situation, or eases stress and provides a better quality of life. For most other purchases, preparing a savings plan to save your money over time is best.
In some cases, your home may not increase substantially over time. This downward trend can be related to economic downturn, extreme weather, natural disasters, or fire damage. Keep this in mind to ensure you will be able to pay your regular mortgage payments along with the new fees from the line of credit.
Speak with your loan originator to help you establish a financial plan to improve your finances and help you calculate your equity and credit budget.