Using a Home Equity Line of Credit as an Emergency Fund.
Building an emergency fund is a crucial step to a balanced savings portfolio
Saving for the future is an important aspect of good financial management, and when you're saving for retirement or your child's education, it can even be exciting. We rarely want to think about needing an emergency fund in case something goes wrong, but it's a good idea to start building an emergency fund with at least three to six months worth of living expenses saved. One option for an emergency fund is to draw on your equity with a home equity line of credit, or HELOC.
Learn about home equity uses as an emergency fund
Traditionally, emergency funds are held in a readily accessible, high-interest bank account, such as a savings or money market account. However, another option to consider is a home equity line of credit. Since a home equity line of credit has flexible repayment terms, a lower interest rate than other loans and tax-deductible interest, it can seem like a good option for emergency funds.
With a home equity line of credit, you draw from it what you need when you need it. You could borrow a small amount to get through a tough time and not touch the rest; just because your home equity line of credit is there does not mean you have to spend it. This also means you're only paying interest on the portion of the line that you used. Remember that your interest is adjustable, so it could rise during the initial draw period, which is typically 10 years.
Using your home equity line of credit as a backup to traditional emergency funds
Having a specific emergency fund set aside is still the best way to be prepared, but using a home equity line of credit to pay for medical bills or insurance payments in the short-term can make sense. You just need to be sure you have the financial discipline to use it for emergencies only and not as a credit card. (If you had trouble repaying the HELOC, it could put your home at risk.)
Learn more about using a home equity line of credit to build an emergency fund by talking to a Citizens Bank home loan originator at 1-888-333-1206. For other emergency fund ideas, like setting up a money market account, certificate of deposit or other savings program, talk to a Citizens Bank representative at 1-877-360-2472.