Your home equity can be a great financial resource if used for the right reasons. A home equity line of credit, also known as a HELOC, can be taken out against the equity in your home to provide you with necessary funds. Although this may seem like an easy way to free up money for yourself, you want to ensure you’re using that money for the right financial reasons to avoid getting yourself into a less than ideal financial situation.
What is a HELOC?
A home equity line of credit allows you access to a certain amount of cash based on your home’s value, mortgage balance, credit score and ability to pay. In some cases, you may be entitled to get up to approximately 85% of your home’s worth.
Now that you know you can get a line of credit against your home, one big question remains: should you? It is wise to borrow and spend on things that matter and are important while staying financially healthy. Here are the most common instances when a HELOC is the right choice.
Home Upgrades or Improvements
It is advisable to borrow against your home to add value to it and when you can meet approximately half the cost. There are home improvements capable of adding value to your home. If you take out a HELOC and intend to use it for a specific project and period of time, you can help reduce the duration of time to pay the interest and reduce the urge to overspend.
Some may disagree with securing a loan with your home to consolidate debt for two reasons. First reason is that you’d be turning a consumer debt into a secured one. Second is papering over an overspending challenge by freeing up more funds may put you further into bad financial health. It is definitely a personal decision that should be weighed heavily.
However, if you have turned over a new leaf and are incredibly responsible, you may be able to make it work with your finances and pay the balance back with a lower interest rate than your debt previously had.
In case of an emergency and you’ve exhausted all other ways of getting cash, home equity line of credit comes to your rescue. It may be appropriate when supplementing an already inadequate emergency fund.
Using HELOC to help supplement college costs can be recommended for parents capable of paying the balance before retiring. You want to ensure this decision is right for your financial situation and look at all options before decision making.
When carefully planned and spent, home equity line of credit funding can go a long way for borrowers. For more information about HELOCs, contact us today!