Of all the assets you own, your home is likely your most valuable. Home ownership is a long-term investment that not only provides a comfortable space to build a life and raise a family, but also increases in equity over time as you make mortgage payments.
Equity, as defined by Merriam Webster, is “the value of a piece of property (such as a house) after any debts that remain to be paid for it (such as the amount of a mortgage) have been subtracted.”
If you’ve already built up a fair amount of equity in your home, you may be eligible for a Home Equity Line of Credit. A Home Equity Line of Credit, or HELOC, can help you leverage your home’s value to secure funding for other projects or needs. At least 12% of Americans already have access to an equity-based line of credit, according to Bankrate. And a recent study by Mortgage Bankers of America found that this popular financial tool will continue rising in popularity through 2021.
How HELOCs Work
We previously talked about personal loans and personal lines of credit. Home equity loans (HELs) and home equity lines of credit work much the same way. Both home equity and personal loans give you the full lump sum up front and are structured for people who know how much they want to borrow.
By contrast, a line of credit allows you to access the funding as needed. You borrow money, pay down the balance, and repeat. What sets the home equity line of credit apart is that it uses your home as collateral.
Here are 9 Ideas for Using Your Home Equity
- Home renovations. There are numerous ways to update a home. Next on your list might be an extra room, a renovated kitchen, or a new deck. Home projects are notorious for moving timelines, exactly when a revolving credit line can be useful.
- Student loans. It’s not uncommon for families to have two or more student loans, sometimes from different institutions. Consolidate those into one easy, lower-interest payment.
- Medical debt. Nobody likes getting sick. Worse is when you get slapped with a big bill and don’t know how you’ll cover it. Home equity is one option to help tackle unexpected medical expenses.
- Credit card debt. If you used credit cards to get out of a previous emergency, or you still have some debt racked up from years ago, a HELOC might offer the chance save money by consolidating your debt at a lower interest rate.
- Emergency fund. Just because you have an open credit line does not mean you are obligated to use it. But having access to a HELOC can give peace of mind that you have backup available should an emergency happen, or you find yourself in need of fast cash.
- Additional property. Consider a HELOC to help cover the down payment on a second property. The ability to draw money out at your convenience is useful when dealing with extended real estate timelines. With a standard loan, you might be making payments on it before the property transaction is even complete!
- Vehicle repairs. Unexpected car or truck repairs are costly and not always covered by your savings or warrantees. Tapping your home equity to cover it in the short term may help you get back on the road sooner.
- Appliances or furniture. Whether you’re renovating your current home or shopping for that second property, you can take your time. Furnish the new space all at once if you want or borrow and pay back over time until the project is finished.
- Vacation fund. You can breathe easier while planning that big trip. A line of credit gives you the freedom of a credit card, but with much lower interest rates. Get out and have fun!
Make it Worthwhile
Although you can get cash on demand, your HELOC is not an ATM. Every time you access funding, the equity in your home decreases until you’ve paid back the loan. Groceries, phone bills, and other smaller, frequent expenses are probably not the best use of this tool. If the money will go towards a long-term, big-ticket want or need, then a HELOC could be the right choice.
The Hybrid Approach - Starion Bank Flexline
A HELOC through Starion makes the money immediately available at a low, competitive rate. But as with other lines of credit, the rate can change over time as you access the funds. What if you have a one-time project and don’t want to take out a separate loan? We can help.
Flexline lets you lock in part of your line of credit with a specific rate and payment schedule. You can use more than one lock, and as you pay them down, the money again becomes available in your line of credit. It’s the best parts of a HEL and HELOC.
Ask a Banker
Before you apply, talk with a Starion banker. We can help you figure out how much funding you may qualify for and whether a HELOC really is the best financial tool for your needs. We're always happy to answer questions about our competitive rates, payment schedules, and other details about Starion Products.