A home equity line of credit (HELOC) can benefit you in many ways. But at the same time, it’s not the right financial tool for everyone. You need to know when a HELOC is a good decision and when it’s best to consider another option.
The primary benefit of a HELOC is its ability to act in a similar manner as a credit card. You’re given a line of credit that you can use, pay off, and then use again. With a low interest rate, many people prefer it over a credit card.
Here are some of the many other reasons why a HELOC may be a good decision for you:
Low interest rates:
As noted above, the interest rate associated with a HELOC is more competitive than many other financial products. This allows you to save money, no matter how much you borrow.
Interest only payments:
You don’t have to make interest only payments, but this is an option offered by many lenders. With this, you’re able to keep your monthly payment low, while dealing with the principal later on.
You can deduct the interest you pay on a HELOC, which can save you money at tax time. Speak with your accountant before applying for a HELOC to determine if you qualify.
Use the funds however you want:
From a home improvement project to a dream trip, you can use a HELOC however you best see fit. Just make sure you’re comfortable with what you’re getting in return for your money. It’s easy to spend, but much more complex to pay back what you owe.
No usage fees:
You don’t have to actively use your HELOC. You can take money from it when you need it, while letting it remain dormant at other times. The choice is yours.
If you’re convinced that a HELOC is a good financial decision, here are a few final questions to address:
- Have you compared a HELOC to a home equity loan and personal loan?
- Do you have a lender in mind? Have you compared a minimum of three?
- Are you confident in your ability to make regular monthly payments?
Securing a home equity line of credit is a big decision, so take as much time as necessary to research your options. In the end, you may come to realize that a HELOC is the best way to get access to the funds you need.