Home equity loans or home equity lines of credit (HELOCs) are great financial tools but like any other tools, they must be used properly. You have to think carefully about how you're going to use your HELOC; tax rules changed in 2018 and not all home equity loan interest is deductible like it was in the past. And, of course, you don’t ever want to borrow too much and risk losing your home, which is used as collateral.
Following are five ways you may want to use a HELOC:
- Improving your home is the most common way people use home equity. Whether you need a new roof or heating system, or you're ready for a new kitchen or a backyard patio for family entertaining, a HELOC can help you make these home improvements. Be practical and make improvements that are smart investments and increase your home's value. Another benefit to using a HELOC for home improvement: you can still deduct the interest for this expense on your tax returns if you itemize your deductions and if your mortgage debt is within government limits.
- Consolidating debt from several credit cards. Using a HELOC to pay off the debt on several cards makes managing your debt much easier. Instead of several different due dates, interest rates and amounts, you’ll have just one of each and chances are the monthly payment will be much smaller.
- Financing a college education is also a popular use for home equity. With rates that are typically lower than some types of student loans, using your home as collateral can provide both lower payments and cost savings.
- Paying off credit card debt that carries a high interest rate. Usually a HELOC will have a lower interest rate, so it can make financial sense as long as you don’t continue to use the high-interest credit card and run up another big bill.
- Financial hardship or emergencies caused by, for example, a health issue or temporary drop in income. The smart move is to get approved for the loan before you find yourself in trouble so you can access the cash when you need it, quickly. You can get approved for a HELOC and not borrow against it until you need it. If you’ve chosen a good lender (like Hanscom FCU), there should be no application or annual fees so having the loan ready won’t cost you a thing.
Your primary goal with a HELOC, in addition to using it wisely, is to keep your home and finances safe. Be practical and don’t treat it like it’s winnings from a lottery. Remember that your home, likely your most valuable asset, is at stake should you run into financial difficulties.
Learn more about home equity by downloading our free Equity Edge eBook. This eBook will introduce you to current remodeling trends, affordability, and includes tip sheets on going green and quick home improvement projects that'll spruce up your home in a pinch.
Hanscom FCU’s 3 in 1 Home Equity Advantage Plan combines the convenience of an equity line of credit, with options for fixed rate advances and a credit card. There are no application fees, no minimum draw requirements, and no closing costs.*
Our home equity and mortgage experts are happy to answer your questions and help you understand your available options. We understand your unique financial needs and have the tools and expertise to help you achieve your goals. Let our dedicated home equity team find the perfect solution to make your financial dreams a reality.
Learn more at www.hfcu.org/equity.
* If you terminate your line within the first 24 months after closing, you will be responsible for closing costs.
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