Top Uses of a Home Equity Line of Credit (HELOC)
Homeowners who have equity built up in their homes can tap into that equity using a home equity line of credit, or HELOC. This financial tool can be a great way to accomplish several financial goals.
Here are four excellent uses of a HELOC for homeowners to consider.
Consolidating Costly Debts
Credit card debt and other types of consumer loans are costly unless a debtor is lucky enough to have a no-interest card. Borrowers can consolidate that debt into a HELOC, which is much more affordable because it is a secured debt.
This advantage only works if the borrower stops adding to the debt problem. A HELOC becomes a valuable tool to get rid of debt quickly when used properly.
Create An Emergency Fund
Most people do not intend to end up in credit trouble, but emergencies happen. Emergency home repairs, job loss, or car repairs can quickly add up to unwanted debt.
A HELOC provides homeowners with the option to have an emergency fund. Should one of these emergencies pop up, the homeowner can use the HELOC for an affordable source of funds.
Home Repairs That Add Value
Some home repairs add value to the property but are also expensive. A HELOC can provide a source to fund these repairs. Because they put value back into the property, homeowners may be making use of their equity when using a HELOC for this purpose.
To make this work well, homeowners should choose repairs that add to the home’s value. Since the cost of the repairs comes from equity, the home’s owner should recoup the costs later when selling the home.
Funds For Investing
Finally, homeowners can use funds from a HELOC to start investing. This is risky, because the loan is paid regardless of how successful the investment is, but it can give a homeowner the chance to start investing for the first time.
Similarly, retirees can sometimes use HELOC funds to supplement retirement income if investments are struggling. This is a temporary solution to give investments a chance to recover, but for those living on a fixed income it is helpful to have this option.
The HELOC is a valuable tool for homeowners that allows them to tap equity when needed. Since they have spent years building up this equity, homeowners should not fear using it when it can help with their financial goals.
Contact a trusted mortgage advisor with Bond Street Mortgage to find out if a HELOC is right for you.
Frequently Asked Questions
A HELOC, or home equity line of credit, allows homeowners to borrow against the equity in their homes to accomplish financial goals such as debt consolidation, emergency funding, home repairs, or investing.
Homeowners can consolidate high-interest credit card and consumer debt into a HELOC, which typically offers a lower interest rate since it is secured by the home, helping to reduce debt costs if they avoid adding new debt.
Yes, a HELOC provides an affordable source of funds for unexpected expenses like home repairs, job loss, or car repairs, acting as a convenient emergency fund for homeowners.
Home repairs that add value to the property are ideal to fund with a HELOC, as they help homeowners recoup costs when selling the home by increasing its overall value.
While using a HELOC for investing can provide a chance to start investing or supplement retirement income temporarily, it carries risk since the loan must be repaid regardless of investment success.