Your home is an investment, and its equity can be yours to tap into if you need it. If you have a loan to value ratio of 85%, you can usually apply for a Home Equity Line of Credit (HELOC).
Generally speaking, the most common use of a HELOC is to fund a home improvement project or make renovations. But alternatively, it can be used to fund other life events or needs. Once you take out a home equity line of credit, you don’t need to use it right away. You can ready to cover costs when things come up in life.
Here are a few different ways to make the most of your HELOC besides home renovations.
- Debt Consolidation
A HELOC can be used to consolidate high-interest debt at a lower interest rate. Homeowners sometimes use home equity to pay off other personal debts, such as credit card or medical debit, or even car loans.
If you have a solid debt payoff plan, using home equity to refinance debt can help you get out of debt faster. Especially if it means you’ll be paying a substantially lower interest rate, saving yourself money each month.
- Emergency Expenses
Most financial experts agree that you should have an emergency fund to cover three to six months of living expenses, but that may not be a reality for many Americans.
If you find yourself in a costly situation — perhaps you’re out of work— a HELOC may be a smart way to stay afloat. However, before you take out a home equity loan to cover an emergency expense, make sure you have a plan to repay the debt.
- College Education or Repay Student Loans
Student loans are still the most common way to pay for an education, but the use of home equity can still be advantageous when rates are considerably lower than student loan interest rates. If you want to use a HELOC to fund your child’s education, or your own, be sure to calculate the monthly payments during the amortization period to determine whether you can pay this debt off before you retire.
- Big Ticket Purchases
With the average costs of weddings growing each year, it might make sense to take out a HELOC to cover wedding expenses. Or perhaps you’ve dreamed about taking an once-in-a-lifetime vacation. Tapping into your equity may be the perfect solution to fund a major life milestone when rates are favorable.
Is a HELOC right for you?
We can run the numbers and ensure that you can continue paying your regular mortgage on top of a new home equity line of credit, and that you have a solid plan for improving your financial situation with home equity money.
When you are ready to apply, Horizon is here to help. Learn more here, apply online or talk to your local advisor at 888-2873-2640.