HELOCs fund more than home improvement projects. Just ask millennials.

When it comes to using a home equity line of credit (HELOC), the top reason is undisputed: financing home improvement projects.

Still, millennials appear to be thinking outside the home-improvement box when it comes to HELOCs.

A 2019 Citizens survey found that people 40 and younger are considering more use cases for a HELOC than those over 40. Home improvement is still their top consideration, but they're more likely to use HELOC funds for other goals than previous generations.

Does a HELOC make sense for these goals?

Yes! It's clear that millennials perceive HELOCs as a way to enhance their lives as well as their homes. That reasoning makes a lot of sense.

Let's jump ahead to the future for a second. Your daughter is getting married in a few months. A critical, large payment is due to the venue in a few days, but you don't have the cash to make it.

Or, perhaps your roof starts leaking one day and you need cash fast to fix it.

Having a HELOC would take the stress out of these situations. You'd simply draw the money you need, make your payment, and be done with it. No stressing over losing the venue or enduring days' worth of water damage. HELOCs are the security blanket life needs sometimes.

Why it pays to be proactive

Sure, you could apply for a new HELOC when you need cash. Lenders will do everything they can to expedite your request, but there's only so much that can be done to cut down on the turnaround time. That's why it behooves you to have a HELOC in place so when these situations arise, you can withdraw the money in no time. Apply for a HELOC before the roof leaks, not after.

Still, what if you never need the HELOC? Would opening one have been a mistake?

No! You only pay back what you use. If you open a $50,000 HELOC but never draw from it during your 10-year draw period, there's no repayment involved — no interest payments on the $50,000, and certainly no principal payments. However, you might have an annual fee for your HELOC and some lenders charge other fees.

With a HELOC, you can quickly withdraw the funds you need so you can get back to living your life instead of filling out loan applications.

Look into opening a HELOC once you've accrued more than 20% equity in your home. You'll need that, plus additional equity, to qualify for a HELOC.

What are the tax implications?

Sure, HELOCs can be used for more than home improvement projects, as millennials are noticing. Still, the government doesn't treat all use cases the same when it comes to tax deductions.

Interest paid on a HELOC may only be tax deductible if the funds are used to "buy, build, or substantially improve the taxpayer's home that secures the loan,” according to the Tax Cuts and Jobs Act (TCJA) of 2017.

Should that stop you from using a HELOC for an emergency fund or to help fund your child's college education? That's up to you. Consult a tax professional to find out how that could impact your financial picture.

Will this thinking continue?

It's clear that millennials are reimagining home equity lines of credit and how they can be used to their benefit. But will this signal a change in the market? That's probably too early to answer.

As the 40-and-under crowd gets older, they'll be faced with tough questions regarding their house. Should we trade up for a bigger, better home? Or fix it up to make it the one we need at this point in our lives? If the answer is "fix it up," millennials could swing back to using HELOCs more for home improvement projects as they reshape their home.

Only time will tell.

More information

A HELOC could be the security blanket you need as you go through life. Learn more about a HELOC through Citizens.