By Brittney Monteith | Written Under Useful Tips
If you’re a homeowner, your home is likely your single largest investment. You can put that investment to work for you using your hard-earned equity. A home equity line of credit, or HELOC, is one of the best ways to leverage that equity. Is a HELOC a good idea? It obviously depends on your financial situation, but overall HELOCs are incredible tools to help you manage life’s unexpected moments! Read on to find out the best time to open a HELOC, and three key ways to leverage those funds for financial security.
The best time to open a HELOC is before you need it! Once you’ve built up equity in your home, you can take out a line of credit. You aren’t required to use the funds right away, so you can simply keep it available and renew it as needed. It’s also best to apply for the HELOC while you’re in a solid financial position, with steady income and good credit. This will make it easy to open the line of credit and give you access to better rates. If you need to use the HELOC for unexpected life events that may damage your credit or income source – the funds are already available for you.
We’re not quiet about how important we think emergency funds are for financial freedom. Keeping a separate savings account to use for unexpected expenses is vital. However, a savings account isn’t your only option. HELOCs can also be used in case of emergency. Since you don’t start repayment or are charged interest until you use funds, you can keep a line of credit open but idle as long as you need. If you lose a source of income, or are unexpectedly injured, a line of credit can be a solid source of funds in addition to your emergency savings account. Just make sure you open it before you need it.
The most common use of a HELOC are home renovations. This is a smart way to leverage the equity in your home because renovations can increase the value of the home. The more value, the more equity available. This can create a positive return on your investment.
HELOCs don’t have many restrictions for how you can utilize the funds. This means you can use the line of credit for a wide variety of financial needs. One of our recommended uses is to cover the gap between college costs and financial aid. Scholarships, grant money, and federal loans may not completely pay for each semester’s tuition and other expenses. But the costs can change each year or even each semester. When you use a line of credit over a different, fixed loan, you can withdraw only the funds you need each semester but keep the line of credit open throughout all four years of school.
The best thing about HELOCs is that you aren’t committed to repayment unless you use the credit line. You could have a HELOC open for months or years without actively using the funds. However, some financial institutions charge annual fees just for access to the credit line. Look for a lender that doesn’t charge an annual fee for their HELOC – like AmeriChoice! This way you get a better value for your money, and you don’t feel pressured to use the HELOC just because it’s open. The line of credit will simply be there to help manage any of life’s curveballs.
Have any questions about lines of credit we didn’t answer? Leave them in the comments below!
If you’re interested in learning more about AmeriChoice’s home equity lines of credit, visit our home loan center and apply today!