5 Uses for a Home Equity Line of Credit

Financing major life events or home projects can run you dry on cash, but you might be able to get a loan based on one of your own assets: your home. A home equity line of credit, or HELOC, gives you flexibility in borrowing money over time at variable rates, much like a credit card.

Unlike a credit card, though, the loan uses your home as collateral, so not making payments can put you at risk of foreclosure. On the other hand, since it’s a secured loan, the interest rate tends to be low. Also, the interest that you pay is tax-deductible in many situations. As long as you’re able to pay it back monthly, this kind of loan can be a good way to finance any of the following objectives:

1. Debt consolidation

If you’re tangled in debts from credit cards to student loans, you may be able to pay them all off using a HELOC. This can streamline your payments and reduce your monthly interest costs. How much you can borrow depends on your equity, or the difference between your home’s market value and any mortgage debt you have. You can get lines of credit for up to 90% of your equity at lenders like Hopewell Federal Credit Union.

2. Home improvements

One common use of a HELOC is improving your home when you want to tackle a series of small projects. Rather than coming up with a master budget and borrowing a lump sum, a HELOC gives you the flexibility of taking money as needed. That lets you focus on each project separately, which can help you prioritize the ones with the best return. For example, the national average cost of a minor kitchen remodel, which includes touching up cabinets and replacing flooring and some appliances, is just under $20,000, according to Remodeling magazine. However, almost 79% of the cost may be recovered if you sell the home in the near future.

3. Unexpected medical expenses

Instead of putting a hefty medical bill on a credit card, you could use a HELOC. The interest you pay can be tax-deductible, which can help ease the financial impact.

4. College education

If you want to go back to school or pay your children’s college costs, a home equity line of credit can let you finance education at a generally low interest rate. Plus, if you’re not sure how long you’ll be in school, the period for drawing money from a HELOC can be up to 10 years.

5. Weddings
From the cost of the venue to a wedding planner’s fee, matrimony doesn’t tend to come cheap. The national average cost of a wedding in 2014 came to just under $38,000, according to a recent study. Since the costs can vary widely, you can take various amounts out of a HELOC gradually.

From managing debts to paying wedding costs, a home equity line of credit can help you finance different aspects of your life. The flexibility and immediate access make this loan a valuable option to consider.

Spencer Tierney, NerdWallet

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