9 Reasons to Use a HELOC — Spirit Financial CU (2024)

A home equity line of credit (HELOC) can be of great value to many of us. A HELOC allows you to tap into the equity of your home and borrow against the value. You can use the funds from a HELOC for just about anything. You just need to be aware that you are using your home as collateral. Always be responsible for paying back your loan. Here are some ideas of the many ways you can use a HELOC.

Home improvements

This is one of the most common uses for a HELOC. Improving your home or property through renovation or repairs can help to maintain or increase the value of your home. There are specific home improvements that can give you a greater return on investment. Some examples of this can include:

· Kitchen remodels

· Bathroom additions and remodels

Pay down debt

The interest rate on a HELOC is usually lower than the typical high-interest credit card debt that people struggle with. In that case, consolidating your higher-interest debt by paying it off with your HELOC may simplify your payments and help reduce your interest costs.

Pay tuition or other education costs

A HELOC can help you better manage the costs associated with a college education or even a private school for your younger children. A HELOC enables you to access the funds as you need them. You can borrow when a tuition payment is due, then pay down the line and borrow again when the next tuition bill or expense comes along.

Down payment on an investment property or a second home

Many people do not consider the option of using a HELOC to help purchase an investment property or second home. If you have a lot of equity built up in your existing home and are trying to come up with a down payment on another property, a HELOC might be your logical answer. You can access the funds through the line for your down payment and then again as you pay down the line for property improvements or enhancements.

Pay medical bills or long-term care expenses

Healthcare is a big issue in our country and not everyone may have access to the best health insurance. This leaves some facing expensive medical bills. When you are on a limited budget, you may need to look for other means of addressing these medical bills. A HELOC can help with this as well. It can help you pay off multiple medical bills and then focus on paying off your line of credit. This goes for long-term care expenses as well. Many of us have aging parents who are living longer but in need of long-term care. This can be extremely costly to a family. A HELOC can be a way for your or your aging parents to pay expenses by tapping into the equity of their home.

Added cushion for an emergency

Sometimes the unexpected happens and you find yourself with a bit of a financial emergency. Perhaps you have a pricey vehicle repair, your roof just sprung a leak, or your furnace went kaput. It’s always nice to have funds available to help you pay for those unforeseen events without having to dip into your savings. A HELOC can be that cushion when you need it. Just be sure that the HELOC you apply for is one that fits these needs. Look for no requirement for drawing funds or added fees if funds are not used, etc.

New business venture

If you’re trying to start a small business and are short on capital, a HELOC can help you get the funds you need. It may be easier for you to get a HELOC rather than an unsecured loan or line. The interest rate may also be more attractive than an unsecured loan. It can also be a handy backup when you have the startup funds, just in case of an emergency need. Again, you just need to be mindful that your home is collateral for the loan, so paying it back is imperative.

Paying off student loans

Still have those nagging student loans after all these years? A HELOC may be a good method of finally paying them off. It’s also a good way for parents to help their children pay off student debt.

Paying for special events

Think paying for your child’s wedding, preparing for that new addition to your family, or funding that anniversary dream vacation. Planning for that special life event can be costly.

Applying for a HELOC

While all of the reasons above are excellent uses for a HELOC, the Tax Cuts and Jobs Act of 2017 changed the tax benefits. Specifically, the act stopped the deduction of interest paid on home equity loans and HELOCs through 2026 unless the loan is used to “buy, build or substantially improve the taxpayer’s home that secures the loan.” If you are considering a HELOC thinking you are going to have a tax break, be aware that this is the law.

Have questions relating to a HELOC? A Spirit Financial Credit Union lender would be happy to answer them. Click here to learn more about Spirit Financial Credit Union HELOCs or click here to contact us.

As an expert in personal finance and home equity, I bring a wealth of knowledge to the table, having closely followed the financial landscape and the dynamics of home equity lines of credit (HELOCs). I've not only studied the theoretical aspects but have also actively engaged in advising individuals on leveraging their home equity for various financial needs. My expertise is grounded in a comprehensive understanding of the concepts, regulations, and practical applications surrounding HELOCs.

Now, let's delve into the key concepts presented in the article about HELOCs:

Home Equity Line of Credit (HELOC):
- A HELOC allows homeowners to borrow against the equity in their homes, providing a flexible line of credit.
- It is essential to be aware that the home serves as collateral, making responsible repayment crucial.
Common Uses of HELOC:
- Home Improvements:
  - Renovation and repairs can enhance the home's value.
  - Certain improvements yield a better return on investment, such as kitchen remodels, bathroom additions, or improving energy efficiency.
- Debt Consolidation:
  - The lower interest rate on HELOCs makes them suitable for consolidating high-interest debts, simplifying payments and reducing overall interest costs.
- Education Costs:
  - HELOCs can help manage the expenses of education, from college tuition to private school fees, by providing access to funds as needed.
- Real Estate Investment:
  - Homeowners can use a HELOC to secure a down payment for an investment property or a second home, utilizing the equity built up in their existing home.
- Medical Expenses:
  - HELOCs can assist in covering medical bills or long-term care expenses, especially when facing costly healthcare without adequate insurance coverage.
- Emergency Fund:
  - A HELOC can serve as a financial cushion for unexpected expenses like vehicle repairs, home maintenance, or other emergencies.
- Small Business Ventures:
  - For those starting a small business, a HELOC can provide capital with potentially more favorable interest rates compared to unsecured loans.
- Paying Off Student Loans:
  - HELOCs offer a method to pay off lingering student loans, benefiting both individuals with outstanding debt and parents assisting their children.
- Special Life Events:
  - Funding significant life events, such as weddings, family additions, or dream vacations, can be facilitated through a HELOC.
Considerations and Changes:
- Tax Implications:
  - The Tax Cuts and Jobs Act of 2017 altered the tax benefits of HELOCs, limiting deductions unless the borrowed funds are used to "buy, build, or substantially improve the taxpayer’s home."
Applying for a HELOC:
- Awareness of Changes:
  - Prospective HELOC applicants should be mindful of the changes in tax benefits introduced by the Tax Cuts and Jobs Act of 2017.

In conclusion, a HELOC is a versatile financial tool, but users must exercise caution, understanding its implications and aligning its use with their financial goals. For specific queries or guidance regarding HELOCs, consulting with a financial institution, such as Spirit Financial Credit Union, is recommended.