A home equity line of credit, (HELOC), offers significant versatility to borrowers wanting to take advantage of the equity available in their homes. WEOKIE offers HELOCs as one of our mortgage loan options, and we help our customers know if a HELOC is right for them.
A HELOC is not the same as a home equity loan, where borrowers receive one lump sum of money that they must repay as part of their mortgage.
Instead, when you get a HELOC, you are provided a line of credit up to a certain amount of money. That amount is based on your eligibility for the line of credit and the amount of equity in your home. The more equity you have, the more you can borrow. With a HELOC, you can withdraw funds from the line of credit as you need it. Like with all loans, the better your credit score, the better your interest rate will be.
The Versatility of a HELOC
One of the reasons HELOCs are growing in popularity is that they are so versatile!
Borrowers can use HELOC funds to pay for anything. Most commonly, they are used for major home improvements, renovation projects, additional education, vacations, and debt consolidation.
While there are not any restrictions on the ways that you can use these funds if you get a HELOC, that doesn’t mean that they should be used for absolutely anything. There are wise and less wise ways to spend HELOC funds.
What are the best ways to use HELOC funds?
The best ways to spend HELOC funds are on things that will improve your financial standing over the course of the line of credit. That means that if something is going to help you save money, build more equity in your home, or make more money over time, that is probably a good reason to use a HELOC.
A HELOC is a good way to finance large projects or consolidate debt in part because of their relatively low interest rates. The average HELOC interest rate in 2019 was 5.51%, which is certainly lower than a credit card and many debt consolidation programs.
Funding Home Improvements and Renovations
Home improvements can build equity in your home. Renovations can improve the value of your home so that it is worth more when you are ready to sell it. These projects are among the most popular uses of HELOC funds, especially if the other option is to fund the project through a credit card that will have a much higher interest rate and require repayment much earlier.
Funding College Education
As Americans figure out how to pay the increasing costs of college and graduate school tuition, some people are turning to HELOCs. Homeowners may choose to return to school by using their home equity or pay for their children to go to college. This meets the guideline of improving your financial situation because getting a college or graduate degree is generally considered a good investment and opens up income potential that otherwise might not exist for many individuals.
Is there anything you shouldn’t use a HELOC for?
As we’ve said, HELOC funds can be used for anything. But we don’t encourage you to use them for just anything. Vacations and dream trips, for example, are a lot of fun, but they don’t improve your financial standing by the end of the HELOC period, which means you should be more cautious in spending HELOC funds for such events.
Find out if a HELOC is right for you!
We have put together a free eguide to help WEOKIE customers know if a HELOC is the right choice for them! If you are wondering if your next big project would benefit from HELOC funding, download our eguide today. And don’t forget that you can contact us here at WEOKI