6 Ways How Homeowners Can Use Home Equity Line Of Credit

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Home equity is defined as the innate difference between your home’s appraised value and your mortgage’s balance. When you have a significant amount of equity, banks and financial institutions allow you to borrow a certain amount of it. This process is known as a home equity line of credit or HELOC.

Individuals who get approved for HELOC are then extended a line of credit for a certain number of years by their bank or lending institution. Typically, HELOC is extended for 10 years and its interest rate is typically much lower to that of a regular loan from a bank or financial institution.

Homeowners can use HELOC in a number of ways for their benefit. The following are six common ways how homeowners use their HELOCs:

1. Homeowners use HELOC in home upgrades

Every home could use some additions, restorations, repairs and renovations every now and then. Homeowners use their HELOC in order to make some useful home improvements that improve their living situation and ultimately improve the home’s real estate value.

They can also use their HELOC to invest in energy-efficient and alternate energy systems that will reduce their carbon footprint and make their living situation environmentally friendly. In addition to that, energy-efficient systems in homes also help lower utility bills and some states also offer tax rebates.

2. Homeowners use HELOC to replace expensive lines of credit

The most important benefit of HELOC is that it has a much lower interest rate than a regular line of credit from a bank or financial institution. Since HELOC is a comparatively new line of credit, banks offer discounts and lower rates for users who opt for using their home equity line of credit.

Additionally, the interest paid on HELOC is tax-deductible in most states whereas the interest paid on credit cards or other loans is not.

3. Homeowners use HELOC for personal expenses

Instead of using a regular line of credit or debt from the bank for personal expenses, individuals can simply use their HELOC to fund personal endeavors. Whether it is for funding a child’s college education or helping them pay tuition – homeowners can use their HELOC in times of personal need and simply repay the debt at a later time with its due date.

4. Homeowners use HELOC to consolidate their debt

Due to the interest rates of HELOC being considerably low as compared to those of regular lines of credit, individuals use HELOC to consolidate their debt and hence make their payments simpler. This ultimately results in a reduction of interest costs.

However, individuals should take care to remember that their HELOC is associated with their home and failure to repay credit could result in them losing their home’s possession.

5. Homeowners use HELOC to pay for a second home

If an individual is looking to pay for another home or invest in property, they could pay its down payment or its installments using their HELOC. HELOC is the most logical answer when you are short on cash for investing in property provided that you have a significant amount of equity built up on your existing home.

6. Homeowners use HELOC as an emergency cushion

Homeowners can sometimes face situations in which they need cash and are short on it – these could be medical emergencies, or a loved one facing an issue, or whatnot. For any such unforeseen events, it’s a good idea to have a cushion available that can come in handy in such extreme situations.

Homeowners who are already approved for HELOC don’t have to go through a lengthy process in getting the money in their hand. Later on, homeowners can always return the money obtained at a very nominal interest rate and return it to their bank in small installments.

Related: Cash for Homes Arizona