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When To Opt For A Home Equity Line Of Credit (HELOC)

HELOCA home equity line of credit (HELOC) is one of the most common ways to make use of your good home equity. A HELOC essentially works like a credit card in that you’re given a set amount of that you can pull from at any given time for a set duration of time. For instance, some people might get a HELOC that’s worth $10,000 over the course of 5 years. You can continue to draw from that pool of money and periodically pay it back so that you have a sort of revolving pile of cash over the course of five years. You only have to pull out what you want, when you want it, so there’s a lot of flexibility with a HELOC. But, what exactly should you use a HELOC for?

Understanding HELOC

First and foremost, we must distinguish between a home equity line of credit and a home equity loan. A HELOC isn’t exactly a home loan in that you’re not being paid a lump sum of money with certain terms. Instead, you’re essentially opening up a line of credit that you can draw from for any number of expenses. You are not, however, being given a lump sum. For instance, if you get that $10,000 HELOC, then you only have to use when you need it. It’s not in your bank account and it won’t appear on your bank statements. You can technically max out the $10,000 as soon as possible, but you may be better served opting for a home equity loan in that circumstance.


The question really is, “What should I use a HELOC for and should I even get one at all?” Obviously, it doesn’t really behoove you to get a HELOC if you don’t have any expenses that are too much for you to handle on your own. But, if you don’t have the money to pay for an expense and you have the home equity to get a HELOC, then it might be in your best interest. A line of credit can be used for any expense at all. There’s no limitation to what you can use a HELOC for, but some lenders do require you to make minimum purchases each time you access the line of credit.

Oftentimes, homeowners might use a HELOC for unexpected medical expenses, college tuition for themselves or their children, or ongoing construction work on their home. If you have medical expenses that are ongoing, then a HELOC would be ideal. For instance, if you or a family member incurred a disease that required weekly or monthly treatment and your insurance didn’t cover the cost, then a HELOC would help you make those payments with ease. In another case, if you don’t have money for college tuition, then you could set up a line of credit to help over the course of your or your child’s studies.

Perhaps the most common use of a HELOC, however, is for remodeling work for your home. If you want to make wholesale changes to the home, then it’s going to take quite a bit of time. You can take out a HELOC to cover expenses for the remodel. This is ideal because you’re also adding value to your home even as your spending money from the value of your home.

Author Bio :

Richard Ranns is a real estate investor who frequently contributes to online media on the topics of mortgages, housing rentals, HELOC and other housing related financial matters.

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