Home equity line of credit, popularly known as HELOC, has under its belt several strategic and practical uses. As a homebuyer, you probably have invested ample time and money in developing in your home a decent level of equity that has monetary value. Well, it’s high time to tap into that hard-earned cash for whatever reason. In this blog, we consider the most frequent and efficient ways of using HELOC funds so you come to a reasonable decision on how to use your home’s value. From renovation to debt consolidation, a HELOC can be one of the very strong financial tools if used carefully.
Introduction to HELOCs
A HELOC is quite a flexible financial tool against equity in your homes for borrowing. Unlike with a regular loan, which provides one amount of money, a HELOC offers a revolving line of credit. You can borrow and pay it off, then borrow again within your limit-the period typically called the draw period, usually lasting from 5 to 10 years. By this period, you will already be in the repayment stage, which can also extend for 20 years. The interest rates for HELOCs are usually variable, which they can change in correspondence to the prime rate.
Home Improvements
Money from a HELOC is one of the most common uses of money to finance home improvements. The investment into your house may increase its value and amenity and can lead to an increase in resale. Common projects of Home improvement funded by HELOC are:
Kitchen Renovations: If the kitchen is really outdated, there are several updates that will greatly improve the value and functionality of the house. This generally includes updating the appliances, cabinets, countertops, and flooring.
Bathroom Remodels: Update bathrooms with new fixtures, tiling, and plumbing to make them comfortable and appealing. Energy-Efficient Upgrades: Installation of energy-efficient windows, doors, insulation, and solar panels lower utility bills and increase marketability. Additions: An additional living space-new bedroom, new bathroom, or a new family room-adds much-needed space to a growing family and creates livability within the home.
For the scoop on which remodeling projects pay off at resale, check out the home improvement section at HGTV.
Debt Consolidation
The HELOC Debt Avalanche strategy is yet another somewhat feasible plan. You take all high-interest debt and roll them into one lower-interest HELOC that may help simplify your overall financial life to enable you to save in interest payments so that you may pay off faster and save money long term.
Smaller interest rates: Most of the time, HELOC rates are smaller compared to credit card debt and unsecured loans; hence, quite viable options for debt consolidation.
Single monthly payment: Consolidation of multiple debts into one HELOC payment may offer convenience in managing finances, and more importantly, reduce the chances of overlooking payments.
How to manage debt and how to use a HELOC to consolidate debt is explained in Credit Canada’s guide to debt consolidation.
Education Expenses
Another great practical use for HELOC funds is funding education expenses. Whether it be your children’s college tuition, your own continuing education, or even private school fees, a HELOC can provide the funds needed to cover these costs.
Post-Secondary Education: The cost of higher education is extraordinary. A HELOC allows the family to tap the liquidity needed to pay for a child’s tuition above and beyond savings and financial assistance.
Further Education: Furthering one’s education or additional training leads to different job opportunities and better income
To learn more about tapping home equity to fund education expenses read Student aid and education planning across Canada.
Emergency Expenses
Life is full of uncertainties, and sometimes certain contingencies need to be met when they crop up. A HELOC provides a source for emergency money in case of medical expenses, sudden home repairs, or loss of a job.
Medical Bills: Many times, sudden medical expenses wipe out your savings. HELOCs could help you pay for such expenses while you recover from the illness or injury.
Home Repairs: Essential repairs, such as a leaky roof or an inoperable furnace, can be very expensive. You may be able to tap immediate cash in a line of credit to replace such necessities.
To learn how to fund emergency expenses read The Balance emergency fund guide.
Investment Opportunities
Others tapped into HELOCs for investments into the stock market, other real estate, and even opening a business. Of course, this is quite a high risk but can pay off big with good management.
Stock Market Investments: Proceeds garnered through a HELOC can be invested into the stock market for exponential returns, but the risks of the market need to be taken care of by a great investment strategy.
Real Estate: These are the properties for rentals or investments that pay passive income, building up so much wealth once the HELOC has been placed.
Business Startup: Starting or expanding a business that may bring earnings some time in the future is the most common reason to be borrowing against home equity.
Major Life Events
Most anyone could plan and experience significant life events, such as weddings, great holidays, and other family milestones, that often prove pretty pricey for the purse. The HELOC helps cover these with lesser drainage of your savings.
Wedding: The weddings are quite expensive, but the HELOC covers what it will take to make the day unforgettable.
Vacations: Many use the cash payout to take that dream vacation so dear to their heart without breaking the bank.
Conclusion
A HELOC is one of the fluid means by which a home owner can have access to his or her home equity for whatever needs he or she may have. This may be financing home improvement, debt consolidation, education financing, meeting emergency needs, investments, and celebrating certain life events. These are things that could have been prevented with the use of a HELOC. Indeed, cash from the HELOC should be tapped into carefully: keeping in mind how much danger each and every use may involve.
Custom advice and further reading about HELOCs are also available from leading financial portals, including RBC, TD Canada Trust, and the Financial Consumer Agency of Canada. These could be some of the resources which may let you understand how to use home equity effectively for your particular needs.
Knowing some of the common uses of money from a HELOC and how they might benefit your financial strategy brings immense insight into smart decisions toward goals, whether this means upgrading your home, paying off debt, investing in education, or building up your financial cushion-your HELOC is one of the best tools to have in the toolbox.
