How to use a home equity line of credit
As you settle into your new house, the list of projects and improvements to make it ”home” can become lengthy and costly. After you determine what needs doing, a home equity line of credit (HELOC) can help you finance your home project plans.
Home improvements have become something of a necessity for both new homeowners and future sellers looking to boost their home’s market value. But with housing costs and consumer spending on the rise, affording those renovations isn’t so simple. Furthermore, regardless of your credit score, not many credit cards will offer high enough limits to cover improvements. For example, research shows‡ that while a minor kitchen remodel can add more than $18,000 in value, the average cost of the project is upwards of $23,000.
What is a HELOC?
Simply put, a HELOC is a line of credit that borrows against the equity in your home, which gives homeowners access to a large line of secured debt—separating it from other loans, while offering unique benefits. Whether you’re putting the finishing touches on your new home or making strategic investments for the future, a HELOC can help achieve your goal with the following advantages:
- Pay with a card: Because HELOCs are revolving lines of credit, they allow you to draw and repay funds, and you can make purchases with a HELOC debit card (unless you live in Texas, per state law). You can use the debit card like any other account card, and it can be an easy, efficient way to pay for needed items.
- Financial flexibility: The home equity line can be accessed as many times as needed, so long as the credit is available. And while the equity can be spent on expenses beyond your home – from medical or educational expenses to consolidating debt – it’s important to remain disciplined with your spending. While the interest rates may be lower than a typical credit card, they are often variable, and the loan is secured by your home. Therefore, the wisest way to use a HELOC may be for home upgrades and investments that help retain or add value‡.
- Long-term accessibility and payment: Just as you don’t need to spend your entire HELOC right away, you aren’t expected to repay the entire amount right away. Depending on your HELOC provider, your repayment term may be as long as 20 years.
As with any major financial decision, you should give yourself an additional level of comfort by seeking counsel from your banker or financial advisor before determining if a home equity line of credit is right for you. Carefully review your home equity options to ensure you have the appropriate financial resources to complete your project in the most strategic way possible.
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