With home values on the rise, the equity in your home can provide a cost-effective way to borrow money for just about anything. A home equity lines of credit (HELOC) works similarly to a credit card, but may be better suited for larger expenses and generally has a low interest rate. With a HELOC, you borrow against the equity in your home that is used as collateral. Take the first step by using DCU’s HELOC loan calculator to find out how much you could borrow against your home’s equity. Here are some of the best HELOC borrowing strategies and smart ways to use your HELOC:
Debt Consolidation
A home equity line of credit typically has a better interest rate than other types of loans. HELOC rates are usually lower than the rates on credit cards and other personal loans, which makes HELOCs a powerful tool for paying off and consolidating debt. Financial obligations such as auto loans, personal loans, and credit card balances with high interest rates could be consolidated with a HELOC. This form of debt consolidation can provide lower interest rates and eliminate multiple payment due dates. The downside of a HELOC is that it uses your home as collateral, so if you fail to repay it, you could put your home in jeopardy.
Higher Education
College is expensive, there’s no doubt about it. And if you or your child don’t qualify for low-rate, flexible federal student loans, borrowing against your home’s equity may be one of your better borrowing options. Before committing to any type of loan, compare the interest rates, repayment flexibility, and potential borrower benefits, to choose a financing option that best suits your needs.
Home Improvements
One of the most common reasons for taking out a HELOC is funding home improvements. When considering home improvement projects, be sure to weigh the potential ROI (return on investment). Upgrades such as a new deck or kitchen renovation may increase the value of your home and be well worth the investment down the road. Even if you plan to keep your home, upgrades or renovations can make it a better place to live. Or – in the case of energy efficiency upgrades – a cheaper place to live!
Emergency Expenses
In a perfect world, you would have an emergency savings fund with three to six months of living expenses in reserves. But unexpected expenses may arise that depletes your emergency savings fund, or you may not have one to draw on at all. Your HELOC can supplement emergency reserves if life events such as loss of employment, medical expenses or expensive auto repair bills leave you in the lurch.
What About Other Expenses?
There are plenty of other occasions in which you might want to use a HELOC. For example, you could use one to pay wedding expenses or get a business off the ground. If your other borrowing options have high interest rates or unfavorable terms, a HELOC might be your ideal loan option. If you need help applying for a HELOC at DCU or making the most of your HELOC, speak with one of our knowledgeable representatives.
Please note, membership is required to open a DCU HELOC. Visit our membership eligibility page for more information.
This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.
*Since Earn More is a sweep feature, eligible balances are automatically swept out to FDIC and/or NCUA insured deposit accounts held at participating financial institutions throughout the country. You will still have access to your checking account funds. Learn More about the Earn More Feature here.
