10 Ways to Use Your HELOC
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A Home Equity Line of Credit (HELOC) is a powerful financial tool when used wisely. Since a HELOC allows you to borrow against your home’s equity, it provides flexibility and lower interest rates compared to other forms of credit. However, it is crucial to use it responsibly to maximize its benefits. As your trusted financial partner, we’re here to cover the top ten ways you can make the most of your HELOC.
1. Home Renovations & Improvements
Home renovations and repairs are among the most popular reasons for opening a HELOC, partly due to the tax advantages – the interest you pay can be deducted from your tax return if the funds are used to substantially improve or repair your home.
Use your HELOC to renovate your kitchen, remodel a bathroom, repair a leaky roof and much more. Making these changes can ultimately increase the overall value of your home, creating an investment that can pay off in the long run.
2. Debt Consolidation
If your credit card bills are piling up, a HELOC could help since it generally offers a lower interest rate than other unsecured loans. Consider consolidating your high-interest balances with your HELOC. This can help make it easier to keep track of your monthly payment by combining these balances into one lump sum – one payment, one source, once a month. You will have less worry about missing a due date and save money on interest overtime.
3. Pay for Education
Homeowners can use their HELOC to pay for the cost of college tuition. This type of extended expense is ideal for the HELOC setup: You draw funds as you need them – for a semester or a year – owing interest solely on what you actually use. You can also start paying back on the balance sooner, instead of being saddled with a large balance after graduation.
4. Cover Unexpected Expenses
Life can be unpredictable, and financial emergencies can arise at any time. It’s a good idea to have an emergency fund that includes three to six months of living expenses. Your HELOC can be used to help cover some of life’s unexpected expenses that may arise.
When using your HELOC in this way, it’s important to establish a repayment plan. You can’t use a HELOC as an emergency fund forever since the draw period (when you can access funds) only lasts about a decade at most. Establishing a repayment plan can help you aim to start proactively saving to build a separate emergency fund.
5. Start or Expand a Business
Entrepreneurs can use a HELOC to fund a new business venture or expand an existing one. A HELOC can provide seed money, or the investment needed for a new business or project, to help take your hustle to the next level. A HELOC’s interest rates may be lower than those of a comparable business loan and may be easier to be approved for since you will be securing the loan with the equity built into your home.
While this is a great way to use your HELOC, keep in mind that you are using your home as collateral. If you experience unexpected financial challenges with your business that make it difficult to remain current on the loan payments, the lender could foreclose on your home.
6. Invest in Real Estate
It’s not unusual for homeowners to access equity in their homes to buy real estate. By tapping into the equity of your current home, you can use the funds from a HELOC as a down payment on a new property, such as a second home, vacation home, or rental property. This approach, often referred to as piggybacking, allows you to leverage your home’s equity to finance the purchase without having to liquidate other investments or savings.
7. Make a Large Purchase
Sometimes, a HELOC can be a cost-effective way to finance large purchases such as a new car or major home appliances. Since HELOCs typically have the benefits of lower interest rates than personal loans or credit cards, it can be a smart alternative if you plan to pay off the balance efficiently.
8. Fund a Special Event
Weddings, milestone anniversaries, and other major celebrations can be costly. If you want to avoid draining your savings, using a HELOC to cover event expenses can be an option. If you decide to go this route, it’s important to budget carefully to avoid unnecessary debt or racking up a high balance that you can’t afford to repay.
9. Cover Medical Expenses
Healthcare services can be expensive, and while your insurance company might cover the costs of most services and treatments, sometimes you may find yourself still on the hook for hefty healthcare bills. While your emergency savings fund may cover some of the cost, medical bills can sometimes push beyond what you’ve planned for and require you to explore additional financing options. The flexible repayment terms and lower interest rates that HELOCs can offer make it the perfect product to help cover medical bills such as surgeries, prescriptions and hospital stays.
10. Take Your Dream Vacation
Whether your idea of a dream vacation is a two-week all-inclusive resort on a tropical island or mountain climbing in Montana, the price of relaxation can get hefty, especially for larger families. With flexible repayment terms and lower interest rates, your HELOC could be just what you need to pay for the vacation of your dreams.
A HELOC can be a valued financial tool if you use it strategically. Whether you’re looking to improve your home, consolidate debt, cover future expenses, careful planning and disciplined repayment can help you maximize the benefits.
Next Steps
Ready to make the most of your home’s equity? Our dedicated team is here to help you get started!
- Apply online today
- Make an appointment to visit your local branch
- Read our blogs about how to lock in the best HELOC rates and deciding if a HELOC is right for you
Read our other blog articles to help you gain the financial knowledge you need to succeed.