{"id":8159,"date":"2019-11-08T06:56:49","date_gmt":"2019-11-08T14:56:49","guid":{"rendered":"https:\/\/financer.com\/?p=8159"},"modified":"2024-06-27T11:55:47","modified_gmt":"2024-06-27T18:55:47","slug":"make-the-most-of-your-home-equity-line","status":"publish","type":"how_to","link":"https:\/\/financer.com\/loans\/articles\/make-the-most-of-your-home-equity-line\/","title":{"rendered":"How To Make The Most Of Your Home Equity Line"},"content":{"rendered":"\n<p>A home equity line of credit or HELOC can be a <strong>powerful financial tool<\/strong> if it is used wisely.<\/p>\n\n\n\n<p>If your home has increased in value and you\u2019ve been paying your mortgage balance down over time, you likely have equity in your home. <\/p>\n\n\n\n<p>Equity is the difference between the value of your home and the remaining balance you owe to the lender. A HELOC can help you unlock some of this equity to fund any number of projects and expenses \u2014 but it is important to use these funds prudently.<\/p>\n\n\n\n<p>Using your <a href=\"https:\/\/financer.com\/loans\/home-equity-lines-of-credit\/\" data-type=\"page\" data-id=\"7120\">home equity line of credit<\/a> to buy a new car (a depreciating asset) or fund a one-time experience like a vacation or a wedding wouldn&#8217;t be considered a great investment. <\/p>\n\n\n\n<p>Not only will you pay interest on the HELOC, but these purchases offer little to no chance of a monetary return on your investment.<\/p>\n\n\n\n<p>The most productive uses for a <a href=\"https:\/\/financer.com\/blog\/cash-out-refinance-vs-heloc\/\" data-type=\"post\" data-id=\"28250\">home equity line<\/a> are ones that have a return on investment greater than the HELOC\u2019s interest rate or those considered to be an <strong>investment in your future.<\/strong><\/p>\n\n\n\n<p>Is it a good idea to take equity out of your house? We&#8217;ve put together a list of five of the most common and potentially sensible ways to use funds from a HELOC.<\/p>\n\n\n<h3>How to Get Equity Out of Your Home<\/h3><h4>Top Tips:<\/h4><div class=\"single-article__steps-toc_step\"><a href=\"#step_1\">1. Make strategic and timely home improvements<\/a><\/div><div class=\"single-article__steps-toc_step\"><a href=\"#step_2\">2. Pay off your higher interest debts<\/a><\/div><div class=\"single-article__steps-toc_step\"><a href=\"#step_3\">3. Create an emergency fund<\/a><\/div><div class=\"single-article__steps-toc_step\"><a href=\"#step_4\">4. Bridge the gap on your next home purchase<\/a><\/div><div class=\"single-article__steps-toc_step\"><a href=\"#step_5\">5. Invest in education<\/a><\/div><div class=\"single-article__steps\"> <style>\n .single-article__steps-items .single-article__steps-content{\n background:#FFFFFF;\n padding:30px;\n margin:0 0 30px 0;\n border-radius:10px;\n box-shadow:0 0 10px 0 rgba(0,0,0,0.14);\n width:calc(100% - 5px);\n}\n .single-article__steps-items .single-article__steps-counter{\n padding:5px 20px;\n border-radius:3px;\n background-color:#F5E7D8;\n display:inline-block;\n top:15px;\n left:-30px;\n position:relative;\n font-size:16px;\n font-weight:600;\n}\n\/* .single-article__steps-items::before{\n content:\"\";\n position:absolute;\n top:20px;\n left:0;\n height:calc(100% + 40px);\n border-left:2px dashed #e0e0e1;\n}*\/\n .single-article__conclusion-tag{\n padding:5px 20px;\n border-radius:3px;\n color:#000000;\n background-color:#F5E7D8;\n display:inline-block;\n top:15px;\n left:-30px;\n position:relative;\n font-size:16px;\n font-weight:600;\n}\n .single-article__conclusion-item{\n background:#FFFFFF;\n padding:30px;\n margin:0 0 30px 0;\n border-radius:10px;\n box-shadow:0 0 10px 0 rgba(0,0,0,0.14);\n}\n <\/style>\n <div class=\"single-article__steps-items\"><div class=\"single-article__steps-counter\" id=\"step_1\">Tip 1<\/div><div class=\"single-article__steps-content\"><h3 id=\"Make-strategic-and-timely-home-improvements\">Make strategic and timely home improvements<\/h3><p>One of the most common reasons homeowners cite for taking out a home equity loan is to fund home improvement projects and renovations. This includes tackling needed repairs like replacing an old HVAC unit or repairing an aging roof, but could also include critical safety upgrades like bringing plumbing and electrical systems up to current standards.<\/p>\n<p>If you&#8217;re wondering how to pull equity out of your home and use it wisely for your home, the best types of projects are ones that will directly increase the value of your home.<\/p>\n<p>Smart choices include adding livable square footage with an addition, renovating the most-used spaces like kitchens and bathrooms, and exterior improvements that boost your \u201ccurb appeal\u201d.<\/p>\n<p>By maintaining and improving your home you\u2019re protecting the investment you\u2019ve made into the property.<\/p>\n<p><span style=\"font-weight: 400;\">Many homeowners use<\/span> <span style=\"font-weight: 400;\">their<\/span> <span style=\"font-weight: 400;\">home equity to finance <\/span><span style=\"font-weight: 400;\">necessary repairs <\/span><span style=\"font-weight: 400;\">or complete value-added improvements<\/span><span style=\"font-weight: 400;\">. <\/span><span style=\"font-weight: 400;\">It is important to consider the cost of the improvements, the expected return on the investment, and the interest rate and terms of the HELOC when considering this option.<\/span><\/p><\/div><div class=\"single-article__steps-counter\" id=\"step_2\">Tip 2<\/div><div class=\"single-article__steps-content\"><h3 id=\"Pay-off-your-higher-interest-debts\">Pay off your higher interest debts<\/h3><p>Consider the fact that the current average APR across all credit cards is 15.13% as of Q2 2022 <a href=\"https:\/\/www.federalreserve.gov\/releases\/g19\/HIST\/cc_hist_tc_levels.html\">according to Federal Reserve data<\/a>. If interest rates continue to rise, these numbers could go higher as well.\u00a0<\/p>\n<p>The average cost of credit card debt is even higher when you include only card accounts where interest is being assessed. These accounts carry an average APR of 16.65%. Home equity loan rates with lenders like <a href=\"https:\/\/financer.com\/company\/figure\/\">Figure.com<\/a>\u00a0are often less than half of this.<\/p>\n<p>By taking equity out of your home and consolidating your debts you can potentially pay less interest and, depending on the repayment schedule, pay your debts off sooner.<\/p>\n<p>An important caveat here is that once your credit card debts are consolidated, you should focus on paying any new balances off in full each month to avoid racking up new debt.<\/p>\n<p>If you find that this takes more financial discipline than you have, consider setting up automatic payments to ensure you\u2019re not revolving a balance going forward, and check out <a href=\"https:\/\/financer.com\/personal-finance\/get-rid-of-debt\/\">other strategies to get rid of debt<\/a>.<\/p><\/div><div class=\"single-article__steps-counter\" id=\"step_3\">Tip 3<\/div><div class=\"single-article__steps-content\"><h3 id=\"Create-an-emergency-fund\">Create an emergency fund<\/h3><p>An untapped home equity line makes an ideal primary or back-up emergency fund. Oftentimes you\u2019re only required to start making payments once you draw on your home equity line (though some lenders do have account maintenance fees).<\/p>\n<p>If you don\u2019t already have 3 to 6 months&#8217; worth of your living expenses set aside in case of emergency, you might feel uneasy about unexpected expenses knocking your finances off track.<\/p>\n<p><span style=\"font-weight: 400;\">Getting home equity <\/span><span style=\"font-weight: 400;\">lined up<\/span> in case of a rainy day (or leaky roof) can provide peace of mind while you continue to build up other reserves.<\/p><\/div><div class=\"single-article__steps-counter\" id=\"step_4\">Tip 4<\/div><div class=\"single-article__steps-content\"><h3 id=\"Bridge-the-gap-on-your-next-home-purchase\">Bridge the gap on your next home purchase<\/h3><p>When the time comes to sell your home and move on to the next one, figuring out how to precisely time the sale of your old home to coincide with the purchase of your new home can be difficult.<\/p>\n<p>Using the equity in your old home for the\u00a0<a href=\"https:\/\/financer.com\/loans\/glossary\/down-payment\/\">down payment<\/a> on your new home can help you bridge the gap. <span style=\"font-weight: 400;\">This option can help you avoid the need to get a bridge loan )which is a different type of loan altogether). Bear in mind that this approach carries the risk that you may end up owning two properties for a period if your first home does not sell as soon as expected. It is only ideal if you can handle <\/span>making more than one mortgage payment while waiting for your old home to sell.<\/p>\n<p>Once your <span style=\"font-weight: 400;\">previous<\/span> home sells, you\u2019ll pay off each of the existing loans tied to the property with the proceeds. This may mean that you don\u2019t have the home equity loan for very long, but it can ensure your move is a seamless transition from one property to the next.<\/p><\/div><\/div> <div class=\"single-article__conclusion\">\n <div class=\"single-article__conclusion-tag alt\" id=\"step_5\">Tip 5<\/div><div class=\"single-article__conclusion-item\"><div class=\"single-article__conclusion-content\"><h3 id=\"Invest-in-education\">Invest in education<\/h3><p>Whether you\u2019re helping your child to pay for college expenses, or furthering your own academic career, pursuing higher education is expensive. Rather than taking on high-interest, privately backed loans geared towards parents of students, consider tapping into your home equity.<\/p>\n<p>A home equity line can help pay for expenses that subsidized student loans can\u2019t cover.<\/p>\n<p><span style=\"font-weight: 400;\">Since HELOCs are considered secured loans (tied to real property), the interest rates are generally lower than<\/span><span style=\"font-weight: 400;\">\u00a0other unsecured debt options.<\/span><\/p>\n<p><strong>Making the most of your home equity line\u00a0<\/strong>allows you to tap into the reserves you\u2019ve built up in your home. It\u2019s a valuable financial tool available for people who may be limited by their cash flow but have gained equity through property value appreciation and payment of principal.<\/p>\n<p><span style=\"font-weight: 400;\">Using <\/span><span style=\"font-weight: 400;\">the<\/span><span style=\"font-weight: 400;\"> funds <\/span><span style=\"font-weight: 400;\">from a HELOC prudently<\/span><span style=\"font-weight: 400;\"> to invest in your <\/span><span style=\"font-weight: 400;\">future or put yourself in a stronger long-term financial position can be smart when done appropriately.<\/span><\/p><\/div><\/div> <\/div>\n <\/div>\n\n<div class=\"fn_block block_fn_button buttons is-flex is-flex-direction-column is-align-items-center\"><a href=\"https:\/\/financer.com\/loans\/home-equity-line-of-credit\/\" class=\"button is-rounded is-primary is-large is-arrow\" target=\"_blank\" >Compare home equity loans now <\/a><\/div>","protected":false},"author":11463,"featured_media":19939,"comment_status":"open","ping_status":"closed","template":"","meta":{"disable_branded_featured_image":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","ep_exclude_from_search":false,"footnotes":""},"categories":[1076],"_links":{"self":[{"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/how_to\/8159"}],"collection":[{"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/how_to"}],"about":[{"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/types\/how_to"}],"author":[{"embeddable":true,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/users\/11463"}],"replies":[{"embeddable":true,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/comments?post=8159"}],"version-history":[{"count":46,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/how_to\/8159\/revisions"}],"predecessor-version":[{"id":79125,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/how_to\/8159\/revisions\/79125"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/media\/19939"}],"wp:attachment":[{"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/media?parent=8159"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/categories?post=8159"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}