Most Popular Uses of a HELOC

Are you ready to use the equity of your home as collateral with a Home Equity Line of Credit (HELOC)? A HELOC can be a great way to tap into the equity in your home and pay off debt, home renovations, a vacation, or even medical bills. Secured against the value of your home, a HELOC is a line of credit you can gather funds from and repay over an amount of time. Here are some of the best uses for a HELOC and how to decide if this loan is right for your circumstances.

What are some of the best ways to use my HELOC funds?

While there are many ways to use your HELOC funds, many may not be tax deductible. Typically, the only funds that are tax deductible are those used to make major home improvements. Keep this in mind as you calculate if a HELOC makes the most sense for your current financial situation. Consult a tax adviser for further information regarding the deductibility of interest and charges.

• Home Improvements

Increase the value of your home by using funds to make substantial improvements to your home including, new room additions, a swimming pool, electrical wiring and more.

• Education Expenses

Pay off student loans or help your children attend the school they always dreamed of. 

• Debt Consolidation

Are you losing money by racking up high interest rates every year? Use your HELOC to pay off your credit card balances. 

• Emergency Expenses

Sometimes, life just happens. With a HELOC you can have quick access to cash if an unexpected life event happens like a medical emergency, funeral, or home damage.

• Real Estate Down Payment

Use your funds as a down payment on a rental property or a second home.

• Business Expenses

Random expenses may pop up when starting a new business. You can use a HELOC to pay for new equipment and business supplies.

• Retirement

Taking inventory of your current living situation as you approach retirement is encouraged. You may need to make modifications to your space for physical needs and a quick line of cash can help.

Are there any expenses I shouldn’t pay with HELOC funds?

While the funds from a HELOC can come in handy, we don’t recommend treating your home like an unlimited piggy bank. We know you are a responsible homeowner, which is why we want to share with you some instances where a HELOC would not make the most financial sense.

• Paying for a vacation

It's not a good idea to use a HELOC to fund trivial things like a vacation or a new car. If you fail to make payments, you could lose your house to foreclosure.

• Paying for a special event

Using a HELOC to fund your child’s wedding can offer a more competitive interest rate than a credit card, but the repayment timeline on your loan will also extend. It is best to set aside money over time to pay for these types of expenses with cash.

• Building Credit

Opening a HELOC to build credit doesn’t make financial sense if you already use your credit card responsibly and make timely payments.

What else should I consider before using HELOC funds?

When making a significant financial decision like opening a HELOC, calculating the fees, loan terms, and impact on your monthly budget is important. Here are some other factors to consider to determine if a HELOC is right for you.

Pros

• If you intend to make a high-cost purchase that you do not plan to pay back right away, a HELOC will save you more money on interest than a credit card.
  
  
• A HELOC is a flexible option that allows you to borrow money when necessary. This makes it a great choice if you need access to ongoing funding.

Cons

• Typically, a HELOC has a variable interest rate which means the interest rate is not locked in and is unpredictable. A fluctuating interest rate could impact your monthly mortgage payments.

• While HELOCs can provide you with access to significant funds, it’s important to remember it’s not free money. After the HELOC draw period ends, your new principal and interest payments will be combined into one fixed monthly payment.

Still have questions?

There are many cases where a HELOC can provide a smart way to leverage the equity in your home to achieve other financial goals or pay for large expenses. However, a HELOC also requires discipline, budgeting, and financial tracking. Speak to your loan originator to crunch the numbers and ensure this is the most cost-effective and responsible financial option for you.