If you're a homeowner, you've probably heard about the benefits of using a home equity line of credit, or HELOC, to turn the value of your home into ready-to-access cash. But what exactly is a HELOC, and what's the best way to use it? Learn more with this helpful guide.
What is a HELOC?
Home equity refers to the difference between the amount of money you owe on your home and the value of the home. With each mortgage payment, the equity of your home increases, but equity can also decrease as your home ages and loses market value. A HELOC is a revolving line of credit that allows you to borrow against the equity that you have built in your home. When you get a HELOC, you can borrow money as you need it to the maximum amount for a set number of years. Similar to a credit card, you don't have to borrow the full amount at one time, and you have the flexibility to pay down your credit line to access additional funds as you need them. Once the borrowing period is over, you pay back only the amount you've borrowed, plus interest.
Although you can use the money from a HELOC for any purpose, it's wise to have a plan in place before borrowing against something as important as your home. Here are a few smart ways to use a home equity line of credit:
Make home renovations
The most common reason homeowners use a HELOC is to finance large projects, such as home renovations, additions and repairs. This is because the interest you pay on a home equity loan is typically tax deductible when you use the funds for home-related purposes. Not only can investing in home improvement projects improve the attractiveness, safety and comfort of your home, it may also increase the property's value which in turn creates more equity.
Consolidate your debt
Some people use a HELOC to consolidate high-interest debt, such as credit cards. Because the interest rate on a HELOC is often lower than other types of loans, rolling multiple debts into one HELOC can help you save money on interest. Plus, you'll enjoy the convenience of having just one payment to make.
Cover rainy day expenses
Life is full of surprises, but having a “rainy day" fund can help ensure that you're covered if you're hit with unexpected or emergency expenses. Tapping into your home's equity can be a helpful way to access cash quickly when you're faced with vehicle or home repairs, medical bills or another unanticipated expense.
Pay for education
A HELOC can also be used to help pay for planned life expenses, such as a child's college education. With a HELOC, you can use the value of your home to fund college-related expenses, including tuition, room and board, books and more. A HELOC can be an affordable tool to cover gaps in college funding after financial aid, scholarships and federal aid have been applied.
Are you ready to let your home's equity work for you? A home equity line of credit from Wright-Patt Credit Union can help you turn your home's equity into cash you can use for the life you want to live! On average, our members save over $300* a year by choosing Wright-Patt Credit Union for their home equity line of credit. And with no application fees and low closing costs, our home equity line of credit is a smarter way to borrow.
Visit your local Member Center to learn more about a home equity line of credit from Wright-Patt Credit Union.