At some point, most homeowners face a major expense—whether it’s a necessary upgrade, an unexpected cost, or a meaningful life milestone.
Experienced homeowners consider leveraging their equity when those moments arise to get the job done.
But how do you know if this is the right choice? What are the best reasons to use a HELOC?
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HELOCs can be one of the best financial tools for homeowners
Home Equity Lines of Credit—also called HELOCs for short—are powerful financial options that enable you as a homeowner to access your home’s equity.
Traditional loans require immediate interest payment and distribution of all funds. In contrast, HELOCs act as revolving lines of credit.
This flexibility can make a big difference. You can withdraw funds only when you need them, up to a predetermined limit.
HELOCs are versatile
The versatility of a HELOC is also a significant advantage.
Planning a major renovation? Looking to consolidate high-interest debt? Preparing for a significant life event?
A HELOC can provide the funds you need at a lower interest rate vs. top credit cards or personal loans.
How to get a HELOC
The HELOC process involves determining your eligibility based on the equity you have in your home. Homeowners should then submit an application and wait for the lender to review it. A home appraisal to determine your home’s current market value may be required.
Reasons for homeowners to use a HELOC
Below are some of the most common and impactful reasons to use a HELOC as a smart financial tool.
We’ll break down how it works and how it can help you achieve several different financial goals.
1. Home improvement
Home improvement projects are easily one of the top reasons homeowners turn to a HELOC.
Whether upgrading outdated appliances, remodeling a bathroom, or giving your kitchen a complete makeover, a HELOC can be the best funding option for homeowners.
The flexible nature of HELOC withdrawals often fits these needs. Home improvement costs rarely occur all at once; they are usually multi-phase projects that require different costs at different times. Sometimes, the expenses occur months apart.
If you choose a standard home loan, you’ll be paying interest on the full amount right from the start. With a HELOC, you only pay for the amount you’ve withdrawn.
Using a HELOC for a remodel might also increase your home’s value. Investing in upgrades can enhance your property’s appeal and functionality.
You’re potentially boosting the home’s market value while enjoying a more comfortable and modern living environment.
Let’s consider how a HELOC can be used for specific home improvement projects.
HELOC for appliances
Upgrading your home’s appliances can significantly improve your quality of life and increase your property’s value.
High-end appliances like refrigerators, washers, dryers, and dishwashers often have hefty price tags. A HELOC can help you finance these purchases without straining your budget.
For example, if your refrigerator breaks down unexpectedly, a HELOC can provide the funds to replace it immediately, allowing you to avoid the high interest rates associated with credit cards or store financing.
Additionally, energy-efficient appliances can save you money on utility bills over time—often a wise investment.
Pro Tip: When using a HELOC for appliance purchases, it’s a good plan to consider your budget carefully and prioritize needs over wants. The temptation is always there to splurge on the latest smart appliances. Focus on items that will give your household the most value and functionality.
HELOC for a bathroom remodel
Are you updating an outdated space? Or perhaps you’re adding a new bathroom to accommodate a growing family? A HELOC can be ideal for covering the costs of materials, labor, and fixtures for a bathroom remodel.
The average cost of bathroom remodels can range from a few thousand for minor updates to tens of thousands for a complete overhaul.
The flexibility of a HELOC means you can access the funds needed to create a spa-like retreat or a functional, family-friendly space.
When planning a bathroom remodel, consider how the project will impact your home’s value. Features like double vanities, walk-in showers, and energy-efficient fixtures appeal to potential buyers and can enhance daily life.
Using a HELOC to finance your remodel, you can spread the cost over time while enjoying the benefits of a modern, updated bathroom.
HELOC for a kitchen remodel
Often considered the heart of the home, a well-designed kitchen can significantly increase your property’s value and immensely improve your homeownership pride.
However, kitchen remodels can be among the most expensive projects, ranging from $20,000 to $50,000 or more, depending on the scope.
A HELOC can provide the funds needed to tackle this major renovation without depleting your savings.
Standard kitchen upgrades include new countertops, cabinets, flooring, and appliances. You may also consider adding an island, upgrading your lighting, or installing energy-efficient features.
Improvements like these enhance the functionality and aesthetics of your kitchen but can also make your home more attractive to potential buyers.
Pro tips: Like bathroom remodels, a smart kitchen remodel requires careful planning and a realistic budget. Work with a contractor to create a detailed estimate of costs and prioritize upgrades that will provide the most value.
2. Debt consolidation
If you’re like many other Americans, you might be juggling multiple high-interest debts, such as credit card balances, car loans, or student loans. In that case, a HELOC can be a great option to help you streamline your payments and save money on interest.
By consolidating outstanding debts into a single, lower-interest HELOC, homeowners have the potential to simplify their finances and pay off debts faster.
The key advantage of using a HELOC for debt consolidation is its lower interest rate than credit cards and personal loans.
Shifting debts can result in significant savings over time, especially if you have large balances on high-interest accounts.
Let’s explore how a HELOC can consolidate different types of debt.
Purchasing a car with a HELOC
If you’re struggling with high monthly car payments or an auto loan with a steep interest rate, a HELOC can help you pay off your car loan and reduce your overall interest costs.
For example, if your car loan has an interest rate of 8% and your HELOC offers a rate of 5%, you could save hundreds to thousands of dollars over the life of the loan.
Using a HELOC to pay off your car loan also simplifies your finances by consolidating your debt into a single payment. However, it’s essential to consider the risks of using your home as collateral.
Missed payments on a HELOC means placing that home at risk of foreclosure.
Paying bills using a HELOC
From medical bills to utility payments, unexpected expenses can quickly add up.
A HELOC can provide the funds you need to pay off these bills and avoid late fees or penalties.
By consolidating your bills into a HELOC, you can also take advantage of its lower interest rate, which can significantly ease financial strain.
For example, if you have a large medical bill you can’t pay upfront, a HELOC can help you cover the cost and spread out the payments over time.
A HELOC can provide much-needed relief and prevent the bill from going to collections.
Pay off student loans with a HELOC
Student loan debt can be a significant financial and mental burden for many Americans. High interest rates can make it difficult to pay off the principal balance.
Alternatively, HELOCs can be used to pay off student loans, potentially saving you money on interest and simplifying your repayment process.
Pro tip: It’s always a good idea to examine the pros and cons of any financial strategy. While a HELOC may offer a lower interest rate than your student loans, it also uses your home as collateral.
Student loan interest is often tax-deductible, whereas HELOC interest may only be deductible if the funds are used for home-related expenses.
Get rid of your credit card debt with a HELOC
Credit card debt is one of the most expensive types of debt. Interest rates often exceed 20%. If you carry a balance on your credit cards, a HELOC can help you pay off the debt and save money on interest.
For example, if you had $15,000 owing on your credit card debt at an interest rate of 22%, you could save thousands of dollars by transferring the balance to a HELOC with a 6% interest rate. This reduces your monthly payments and helps you pay off the debt faster.
Pro tip: When using a HELOC to pay off credit card debt, it’s important to avoid accumulating new charges on your cards. Otherwise, you could end up in a worse financial position than before.
3. Emergency funds
In life, unexpected expenses are going to happen. Access to emergency funds when they occur can provide peace of mind and financial security.
A HELOC can be a flexible and cost-effective source of emergency funding. It allows you to withdraw funds as needed and repay them over time.
Unlike a traditional emergency savings account, which may not cover large or unexpected expenses, a HELOC provides a substantial, quickly accessible line of credit.
Kid’s downpayment for purchasing a home
Purchasing one’s first home is a significant milestone, but making a downpayment can be challenging, especially if one is a Gen Z or Millenial.
A HELOC can provide the funds needed to help your child secure a mortgage and achieve the American dream of homeownership.
For example, if your child needs $20,000 for a downpayment, you can use a HELOC to cover the cost and allow them to repay you over time.
HELOCs can be more affordable than personal loans or siphoning your retirement savings.
4. Wedding budget
Weddings are momentous, joyous occasions. But they can also be expensive.
In 2023, the national average to tie the knot reached $35,000, up from $30,000 the previous year. A HELOC can help you cover the costs of a wedding, from the venue and catering to the dress and photography.
Using a HELOC can help you spread the cost of the wedding over several years, making it more manageable. However, it’s important to set a realistic budget and avoid overspending, as weddings can quickly become a financial burden.
A HELOC for life’s milestones
From anniversaries to graduations, life is full of milestones that may require significant financial investment. A HELOC can provide the funds to celebrate these occasions without derailing your budget.
Planning a milestone anniversary trip? Looking to help your child pay for college? A HELOC can help you cover the costs and create lasting memories.
Rental property purchase using a HELOC
Rental property investments can be highly lucrative ways to build wealth. However, the upfront cash needed can be substantial. A HELOC can provide the funds required to purchase a rental property, allowing you to generate passive income and build equity over time.
However, it’s important to carefully consider the risks of using a HELOC for this purpose. Rental properties come with ongoing expenses, such as maintenance, property taxes, and insurance, and rental income is not guaranteed.
What’s your reason to use a HELOC?
A HELOC’s versatility and flexibility can help you achieve various financial and personal goals. Accomplish goals with HELOC financing, from home remodels to debt consolidation, emergency funding, and milestone celebrations.
It’s important, however, to use a HELOC responsibly and avoid overextending yourself financially.
Considering using a HELOC for your financial goals? Reach out to HomeEQ to explore your options.
Our super-fast and easy digital application can tell you if you’re eligible for a HELOC within minutes. If approved, you could have your funds within days, not weeks, like standard banking options.
With careful planning and budgeting, a HELOC could be your most valuable tool for achieving your dreams and securing your best financial future.
