Is a HELOC Right for You? 7 Top Reasons to Get a Home Equity Line of Credit
Is a Home Equity Line of Credit or HELOC right for you? A Home Equity Line of Credit can be the best method for you to obtain immediate cash from your home. Before you commit to the loan process, you need to know your purpose & desired goal behind obtaining a HELOC. Defining your goal, will clearly help you decide if getting a HELOC is to your advantage. Be sure you know the terms and conditions of any loan program before consenting to continue with the loan transaction. In addition, it is beneficial for you to always get a second opinion before signing on the ‘dotted line.’ Here are 7 top reasons to get a home equity line of credit:
1. You can use the funds for home improvement projects.
When you have decided that you’d rather improve the quality of your home versus selling your current home to buy a “move-up” home, you can choose to use a Home Equity Line of Credit to fund your home improvement project(s). By choosing to do improvements, you may be increasing the desirability and value of your home. Because it is your loan, you have the option to apply your HELOC to any project that you wish whether it be towards a home improvement or if it be towards college tuition for the children.
2. Convenient process of withdrawal of funds – just like writing a check. Instead of having to wait for your loan to close to access your funds, you can write a check to withdraw your money from your home equity line of credit every time you need it. Most HELOC’s are set up in that fashion where the banks provide a checkbook to their borrowers as means to gain access to their funds. This method allows the borrower to go through the loan process only once; any subsequent ‘cash outs’ from their home equity can be done without having to deal with the lender or a loan officer thereafter.
3. Have the funds ready for an emergency. A HELOC offers you more flexibility in comparison to a traditional CASH OUT/REFINANCE. Because of the ‘check book’ convenience, a withdrawal from a home equity line of credit can be done almost instantly so long as the recipient accepts checks for payment. Thus, should an emergency arise, you can immediately pay via your HELOC, then later pay back the funds to avoid interest from accruing. You, basically do not have to go through the loan process again.
4. Ability to access your home equity without having to sell your home. Getting a home equity line also lets you dip into your home’s equity without having to sell your home. The bank gives you license to spend your profits in advance. This also allows you to ‘freeze’ the equity amount by setting your home’s present value v.s. risking a lower approved equity value or sales price at a later date because of a declining market.
5. Allows you to restructure high interest rate debt. By using your HELOC to pay off your credit cards with high interest rates, you can restructure or consolidate your own debt. With a home equity line of credit, you have the ability to create savings by eliminating and paying off high interest rate debt.
6. Funds used may create a tax deduction. Because the funds, in essence, are derived from a home loan. You may be able to deduct the interest. Please consult with your Certified Public Accountant (CPA) for specifics.
7. Setting up a HELOC is usually free with most lenders. If you call the lender who is currently servicing your mortgage, then they may give you a HELOC at no charge as part of their service. Some mortgage brokers also are able to provide you with a ‘free’ HELOC as well. Although the process to create a HELOC may be free, there may be an annual fee to keep the checking account open even if you do not use the home equity line. Be sure you ask your lender questions so you are aware of any hidden fees.
