A home equity line of credit—also known as a HELOC— allows you to borrow from the equity in your home.
While a HELOC isn’t the right decision for everyone, especially those who don’t have equity in their home, there are enough benefits for it to remain one of the most popular ways to secure cash in a hurry.
There’s no shortage of HELOC benefits, but these are among the most powerful:
1. Low APR
When compared to other types of loans and lines of credit, HELOC’s have one of the lowest APRs.
For example, when compared to using a credit card, the interest rate is typically much lower, especially if you have an excellent credit score and strong credit history.
Interest rates change regularly, but don’t be surprised if you find an offer in the five percent range. Compare that to other products and you’ll soon realize why so many people go down this path.
2. Borrow What You Need
With a HELOC, you can borrow what you need and leave the rest of the money available for the future. It’s much like a credit card in this sense.
With a loan, however, you secure all of the money upfront and are required to repay it based on the agreed upon terms and conditions.
Take for example if you secure a $20,000 HELOC. You can use $10,000 of it now, and begin to immediately pay it down. Should you require the other $10,000 at any point while the HELOC is open, you can then borrow that money.
3. Tax Deductible Interest
Even though the Tax Cuts and Jobs Act of 2017 changed a lot of things related to home equity lines of credit, you’re still able to deduct interest should you use the funds for home improvements.
Of course, you should consult with your tax professional about your eligibility.
HELOC Application Tips
Now that you understand the benefits of a HELOC, you may be interested in applying for this financial product. Should that be the case, here are some tips that can work in your favor:
- Don’t assume that every home equity line of credit is the same as the next
- Request information from a minimum of three to five lenders
- Learn more about the application process, including how long it’ll take to receive an approval or denial
- Gather all the information you need to apply
Final Thoughts on the Benefits of a HELOC
There are many high-level benefits of a HELOC, so it’s natural to believe that it’ll suit you well.
If you’re ready to take the next steps in the process, contact a handful of lenders to gather more information and to ask questions.
Do you have any experience applying for and using a HELOC? How did the process unfold? Were you happy with the end result?