What can you use a HELOC for?

Your home isn't just the place where you live, it's also one of the most valuable financial resources you may ever own. A home equity line of credit (HELOC) gives you a way to access that value without selling your home or affecting your current mortgage rate.

Unlike a home equity loan that delivers a lump sum upfront, a HELOC gives you flexible access to funds over a long period of time. You can borrow what you need as you need it, up to the approved line amount. You can also pay down the principal and borrow again, much like a credit card. This flexibility explains why many homeowners look at what can you use a HELOC for and find options ranging from home improvements to debt consolidation. When you use it wisely, a HELOC has the ability to help you manage expenses today while supporting your long-term financial goals.

You can use a HELOC for almost anything

A HELOC is a flexible credit line you secure with your home equity. You can draw from it for almost any expense, whether you need it to pay for home renovations, consolidate debt or pay for tuition.

Because you pledge your home as collateral, you should treat a HELOC with caution as you would your primary mortgage. Lenders want to ensure they only approve borrowers whom they are confident won’t have trouble making payments. Most HELOCs carry variable interest rates, which means borrowing costs can change over time. It's important to create a repayment plan before you draw funds to protect your home and long-term financial health.

Common and uncommon uses for your HELOC

A HELOC can be an affordable borrowing solution. When you consider what you can use a HELOC for, here are some of the most popular (and a few less conventional) ways people use this flexible financing tool.

Home renovations and improvements

Many homeowners use HELOC funds to upgrade their properties. Projects like remodeling a kitchen, updating a bathroom, finishing a basement or adding energy-efficient systems can increase property value and improve your daily living experience.

When you use a HELOC for qualified home improvements, you may also qualify for tax deductions on the interest. Talk with a qualified tax professional to confirm your eligibility.

Debt consolidation and credit optimization

You can use a HELOC to consolidate high-interest credit card balances or personal loans into a single monthly payment. This debt management strategy could help you:

• Lower your interest rate
• Simplify debt repayment with a single monthly payment instead of several
• Free up cash flow to pay off debt faster

Just remember, when you consolidate unsecured debt into a HELOC you tie that debt to your home. Only pursue this strategy if you have a solid repayment plan.

Education expenses and investment in future

Education can be a worthwhile investment. Tapping into home equity for these types of expenses could be a strategic way to use a HELOC.

Some families may use a HELOC to cover tuition costs or fees not covered by traditional student loans (like K-12 private schools, trade, technical schools or associate degree programs). Because you can draw funds as needed, a HELOC can line up well with semester tuition deadlines or course fees.

Emergency fund and financial security

While it's ideal to maintain emergency savings, a HELOC may serve as backup reserves. Access to a credit line can give you confidence that you can cover medical bills, car repairs or other unexpected expenses. One benefit is that you only pay interest on what you borrow, so you’re not paying interest on money unspent.

Investment opportunities and business ventures

Some homeowners tap into HELOCs to invest in property or fund business startups. Using a HELOC for these types of investments can carry extra risk. So weigh the potential return against the possibility of a loss before you move forward. Only invest equity you feel comfortable pledging as collateral.

Major life events and expenses

Borrowers may also use HELOCs to finance weddings, cover an unexpected lapse in wages or large purchases like vehicles and more. These uses for a HELOC won't increase your home's value. So, be sure you understand the risks before applying.

Stay smart when using your HELOC

A HELOC can offer flexibility and the ability to borrow at a great rate. Think carefully about how you use your HELOC to ensure you are strengthening your long-term financial picture. It's important to:

• Create a spending plan before you draw funds.
• Decide whether to make interest-only payments during the draw period (also known as the borrowing period) or pay toward principal in addition to the monthly interest payments.
• Consult a tax expert to see if you could possibly deduct any of your interest payments.
• Account for the eventual repayment period, at which point you'll be required to make payments toward both principal and interest.

Get started with a HELOC today

A HELOC can help you achieve key financial goals ranging from a new kitchen to debt consolidation or education financing. When you create a plan and borrow responsibly, your home equity becomes a powerful financial tool.

Learn more about HELOCs and how to get started.

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