By Tracy Scott
Home equity line of credit (HELOC) usage is on the rise. This should come as no surprise since Americans have nearly $15 billion available in home-equity. A HELOC allows homeowners to access the equity in their homes now instead of waiting until they sell the property. Funds are commonly used for home improvements, but they are more versatile than you might expect.
This revolving line of credit works similar to a credit card, but there’s a significant difference. Your residence serves as collateral for the loan, which means defaulting on the loan can put your home at risk. As with any loan, use a HELOC responsibly by only borrowing what you can comfortably repay. This will minimize the risk to your financial stability.
Here are five ways to use a HELOC that you probably haven’t considered.
Pay Off High-Interest Debt
Eliminating credit card and other high-interest debt with the HELOC can be a great way to save money. Credit card interest rates are often in the double digits, while HELOCs offer a lower interest single-digit cost to borrowing.
Gather your credit card, department store financing, and any other high-interest debt account statements. Compare the monthly payments and interest rates to current HELOC rates to determine if consolidating these debts with a new HELOC loan is a better alternative.
Once paid, resist the urge to charge or use those accounts to avoid the debt cycle that can prevent the achievement of other financial goals.
Pay for College
The limited availability and income eligibility requirements of grants and scholarships may require you to seek alternative funds to cover your child’s education. Tuition, fees, books, and other expenses can be covered with private student loans, but rates and repayment terms are often less than favorable. After exhausting other funding sources that don’t require repayment, compare loan options. The HELOC will most likely be the one with the lowest interest rate.
Buy a Second Home
Effective December 2017, substantial changes under the federal tax code resulted in limitations on what qualifies as a home mortgage interest deduction. Fortunately, the interest paid on a HELOC used to buy a second home is still tax deductible under the Tax Cuts and Jobs Act. In this case, the loan would be secured by the second home and not your primary residence.
Pay the IRS
Do you have an unexpected tax bill this season that can’t be paid in full? Owing money to the IRS can be scary. Use a HELOC to pay the tax debt right away. Avoid the headaches associated with installment agreements and short-term extensions and use the HELOC to avoid IRS fees and penalties.
Fund a Special Event or Occasion
Special occasions such as milestone birthdays, weddings, and college graduations are a time for celebration with family and friends. You want to make it memorable but are not interested in paying 15% or more as you might with a credit card. And, tapping into your emergency fund isn’t a good solution as this isn’t a real emergency. Turn to a HELOC to bridge the gap between your savings for the special event or occasion and the actual cost.
HELOCs offer the flexibility of using as much or as little of your credit limit, as needed, without having to reapply each time. Use a HELOC wisely, and it can be the extra cash source needed to meet your financial goals. Apply for a fixed-rate Generations HELOC at www.MyGenFCU.org/HELOC today!