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By Jane Goldman | Citizens Bank Staff
Your home is possibly the most expensive item you’ll ever buy. And, it’s more than just a place for BBQs & cornhole tournaments, safety from a rainy night, or where you snuggle together and stream your favorite shows.
Your home is also an investment. It’s not just about the return on value you’ll get (hopefully) if and when you sell it, but the property itself is a financial tool for your benefit.
The equity that builds up in your home can be yours to tap into for a variety of needs so you’re ready for anything. You can usually apply for a Home Equity Line of Credit (HELOC) if you have at least 15-20% equity in your home.
RELATED: How to Calculate Your Home's Equity
Once you open the home equity line of credit, a HELOC works much like a credit card. You can use what you need, when you need it (read: you don’t have to use it right away). And you only pay it back when you do. Unlike credit cards, the line amount is typically much higher and many lenders have interest-only payment options during the borrowing or draw period, which is typically 10 years.
Here are five smart HELOC use examples to inspire you.
The most common uses for a home equity line of credit are the various ways you can put it right back into your home. And that makes sense. Often, you’re using the home’s value to increase its overall value by updating the kitchen with popular materials like granite countertops, or increasing the overall square footage of a home by adding a second floor. Another way to use the money would be to pay for updates that may make your home sell faster or allow for a higher asking price.
NOTE: Interest paid on a HELOC may be tax deductible if the funds are used to “buy, build, or substantially improve the taxpayer’s home that secures the loan,” in light of the Tax Cuts and Jobs Act (TCJA) of 2017. We recommend that you talk to a tax advisor to learn more about deductions on interest.
It might be considered the least “fun” reason to open a home equity line of credit, but it’s very practical (and the second most popular use, according to a recent survey). And sometimes, that’s just as important. You can use a HELOC to help you consolidate your debt as its likely your rate would be much lower. You could use it to pay off your mortgage, pay back medical debt, or pay off student loans. You might find that a HELOC can offer lower interest rates, streamline payments, and increase flexibility; it could also improve your credit score over time. But be sure to compare your options and talk to a professional to make sure you’re making the right decision for your needs and situation.
Whether you’re approaching or living in retirement, there are a few ways you can use your HELOC. If you need to unlock cash flow, a HELOC could be a good option. You could also use the funds for a down payment on a rental property purchased to generate additional retirement income.
If your physical needs change but you don’t want to leave your home, you can use the HELOC to help pay for accessibility renovations, such as a first-floor master suite or accessibility ramps. Or, if you decide to go back to school for a second-act career, you could pay for education to help you achieve your dream.
Once you take out a home equity line of credit, you don’t need to use it right away. When things come up in life, like the need to take time off work to care for a family member, you’ll be ready to cover those costs with ease.
A HELOC can also provide peace of mind by knowing you have access to money you can use in the event of an emergency. Rather than tap into your savings or retirement fund, you can use the HELOC to cover a new roof after a storm or pay for a new car when your transmission dies unexpectedly.
Another possible use: If you have the opportunity to get in on a great business idea, you can use a home equity line of credit to finance a new business venture. Because it’s so flexible, it can act as a financial security blanket so you’re always ready for whatever life throws at you.
In life, there are some purchases where it makes sense to charge them to a credit card or take out a personal loan. But in other cases, where the price tag may be higher, using part of your HELOC might make more sense. It might be because the interest rate is better or you want more flexibility to pay it back. There are many scenarios where this could come into play, such as paying for a wedding or a once-in-a-lifetime vacation, or to invest in education for yourself or your kids.
Or maybe you’ve always dreamed of having a summer home for your family. You can use the money from a HELOC as a down payment on another property for your second home.
Unfortunately, we can’t predict the future. But, we can plan for it. A HELOC can provide you the financial flexibility for whatever comes at you, good or bad. No matter the situation, you’ll be prepared to take advantage of amazing opportunities or protect yourself from the stress that life often throws at us. According to a recent study, those under 40 are using HELOCs for more than just home renovations, compared to older generations.
In order to unlock the power of financial flexibility you can get with a HELOC, you need to have the line open before you want to use it.
And remember, even if you open a home equity line of credit and never use it, you won’t have to pay anything back. Keep in mind that whether you use your line of credit or not, you may be charged an annual fee, which is the cost you pay for having the line of credit available when you need it.
A home equity line of credit can be the right financial cushion to make sure you’re made ready for anything. If you think you might be ready for the next step, learn what you’ll need to apply for a HELOC with this application checklist. We have a team ready to help with all your home borrowing needs. Simply call 1-888-333-1206, or click here to learn more.
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