Choosing the right way to finance a major project is a big decision. There are so many options out there, and of course every person’s financial situation is unique.
If you’re considering a home equity line of credit (HELOC), you should definitely compare it to some of the other lending and financing options that exist.
Five ways to finance major projects
Some of the ways that people finance major projects include:
- Borrowing the money from a friend or family member.
- Getting a traditional loan from a traditional lender like a bank or credit union.
- Using a credit card or credit account with a store or contractor.
- Applying for a home equity loan.
- Getting a HELOC.
Each of these has its pros and cons. How does a HELOC measure up? First, let’s make sure that everyone is on the same page and understands what a HELOC is in contrast to these other options.
What is a HELOC?
A HELOC is not a loan but rather is a line-of-credit that you can borrow from over the course of time. You don’t have to get one lump sum of money. The amount you can borrow is based on the equity you have in your home as well as the appraised value of your home.
Getting a HELOC requires you to go through a process of applying, getting your home appraised, and then going through closing and paying all relevant fees and closing costs.
What are the benefits of using a HELOC as compared to other options?
A HELOC is a flexible way to finance your next big project. Let’s break down the benefits of a HELOC when compared to all of your other financing options.
HELOC funds can be used for most anything
Yep, we mean it. ANYTHING.
There are no limitations to how you can use your HELOC funds, which means they are one of the most flexible types of financing available.
That said, some uses are more advisable than others. We recommend using HELOC money on things that will improve the value of your home or help you make more money in the long run. For example, use a HELOC to finance major home improvements or your education.
HELOCs have lower interest rates than many other borrowing options
According to Bankrate, “The best HELOC lenders offer lines of credit with competitive interest rates, low fees and an easy online application process.
That’s certainly a lot better than a high-interest credit card! Many big box store credit cards offer an introductory financing offer with low interest for several months or a year, but those rates go right back up when the rate is over. If you are funding a large project that will take several years to pay off, a HELOC will save you quite a lot over that period of time.
A HELOC allows you to withdraw what you need when you need it
Unlike a home equity loan, a HELOC provides you with the flexibility to get money when you need it.
Instead of getting a lump sum and hoping it is enough and that you can save it to use when it is needed, a HELOC allows you to withdraw and use the funds as you need them. You can pay for the first part of a home improvement project now and the next part later. You can make payments on your tuition as they are due every semester.
Learn more about how a HELOC may be the right option for you
Download our free e-guide, “Understanding and Using a HELOC to Finance Your Next Big Project.” We go through all the basics of understanding, applying for and using HELOC funds.
Federally Insured by NCUA.
And don’t hesitate to let us know if you have any questions!
Federally Insured by NCUA.