5 Smart Ways to Use Your Home Equity Line of Credit in 2022
A home equity line of credit (HELOC) is a loan that you can take out from your home equity. Keep in mind that the purpose of a HELOC is not the same as a mortgage as it acts like a revolving credit.
With HELOC, homeowners can pay lower interest rates over longer periods. And because it’s flexible, most homeowners use the equity in their home to pay for home improvements, education expenses, existing loans through debt consolidation, or even fund business start-up costs.
Keep in mind that when you take out a home equity line of credit, it can fund a whole lot of things, but it's important to think about the right time and right way to use it.
In this article, we'll be diving deeper into what can you use a HELOC for.
Debt consolidation is a way to tackle your existing loans faster. If you have existing loans, consolidating them into one loan with a low monthly payment might be the best way to get out of debt and avoid future high-interest rates.
In this case, it might make sense for you to take out a HELOC with lower interest rates so that you will have more wiggle room in paying off the loan and still have access to your HELOC when needed.
Improving Your Home
If you have a home equity line of credit, you can use it to make improvements to your home. Improvements will increase the value of your home and make it more appealing to potential buyers. Home improvement projects include new roofs, windows, and kitchen counters, new bathrooms or garages, landscaping, and siding on exterior walls.
Adding new rooms will increase the overall value of your property or just add comfortability for the people who live there.
The cost associated with these projects varies depending on how much work needs to be done on each item but they will surely payoff in the long run whether you sell your house or not.
Investing in Rental Properties
You can use the equity line of credit to buy an investment property, such as a rental house or apartment building. Investing in rental properties has seen tremendous growth over the past few years, especially if the location is near cities and central business districts.
HELOC's low-interest rates make it possible for you to save money each month while paying off the loan over time and making profits over the property themselves. This is one of the ways to make sure that you'll be able to pay off HELOC, secure your home, and still make a decent living.
If you are a parent or someone who wants to further his studies, then you know how expensive college is—from the tuition fees, study materials, to housing. But education is also one of the best investments one could ever spend money on.
While student loans exist, it could be hard to pay them off with their sky-high interest rates. Parents can definitely make HELOC one of their child's financial options when going away to college. Without the financial stress of paying off student loans, parents and their child can use their resources to save up an emergency fund, have extra spending money, or keep it in a high-interest savings account.
Starting or Funding a Business
With a home equity line of credit, you can start or fund a business. A HELOC can be used to fund the costs of starting a business with little or no collateral. These include things like equipment, software licenses, and other startup expenses.
If your company is looking to grow by opening an additional location or increasing its workforce by hiring more employees, a HELOC could be used as part of this expansion process.
If your company has been successful and wants more capital available for growth purposes (for example if you're looking at buying out another company or investing in high-tech equipment), then this is the time when getting access to additional funds becomes crucial.
Funding a business can payoff in ways beyond monetary value. It may take a while to get the ball rolling but once you get where you need to be, it's all worth the wait.
Though HELOCs have many benefits, they do have risks associated with them. So when you start thinking about using a HELOC, think about whether you are prepared for the risk associated with it. One of the heavier risks of taking out a HELOC is that you’re putting your home out as collateral. This means that if you miss out on payments, your home may get repossessed by your bank.
When taking out a HELOC, make sure that you will be able to pay it off diligently to avoid paying penalties and additional charges because they will add up to your expenses and may put you deeper into debt.
We hope this article has helped you understand the many ways that a home equity line of credit can be used. Whether you have personal debt, need to fund college, or invest in a property, these options are all viable uses for your home equity line of credit.
If you're ready to use your home equity line of credit, you may give us a call or send us a message on our website today.
* Specific loan program availability and requirements may vary. Please get in touch with the mortgage advisor for more information.