When to use a Home Equity Line of Credit (HELOC)

heloc when to use home equity line of credit

A Home Equity Line of Credit is a loan that establishes a line of credit (amount you can borrow) based on the equity in your home. You borrow the amount you choose for the purposes you choose when you choose to, with no impact on your current first mortgage.

Many homeowners are looking to take advantage of recent appreciation in the value of their homes. When mortgage rates are lower that the rate of the homeowner’s first mortgage, many elect to do this with a cash-out refinance. However, as mortgage rates begin to rise, homeowners are not going to want to give up their low fixed-rate first mortgage. Are you one of those people?

Here are some common reasons homeowners apply for a home equity line of credit:

Home improvements

The money could be used to finance a major renovation project, such as a new bathroom or addition, or to repair the roof or HVAC system.

Debt consolidation

Essentially, homeowners can pay off other high-interest rate debt like credit cards with interest rates often in the 20% range and enjoy a much lower rate on the HELOC.

College expenses

Despite all the discussions on how to make college more affordable, it is still the single largest expense for most families just behind the purchase of their home.  The equity in their home could be used to help pay for college.

Refinance an existing HELOC

This is another very common reason to take out a HELOC.  Simply to refinance an existing HELOC. Just like regular first mortgages, you can refinance a HELOC, either by rolling it into a new first mortgage or by taking out a new HELOC altogether.

Emergency funds

As a HELOC is a line of credit, many homeowners establish the line of credit to cover unexpected emergencies–before they happen.

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