3 HELOC benefits you may not have known
With inflation rising yet again and the interest rates meant to combat it at a 22-year high, many borrowers currently find themselves with limited options. This is particularly true for prospective homebuyers and current owners looking to move or refinance. With mortgage purchase and refinance rates also elevated, many homeowners feel stuck.
Fortunately, most can afford to renovate and repair their existing homes via a home equity loan or home equity line of credit (HELOC). Despite the higher interest rates, many homeowners are currently sitting on a significant amount of home equity due to elevated home values.
By using a HELOC, homeowners can deduct up to 80% of their equity to make repairs, renovations or improvements to their home. They can also use it to pay for other major expenses or to simply consolidate debt or pay off outstanding credit balances. While a HELOC can be beneficial for these reasons alone, there are additional benefits that homeowners may not have known that they should understand now.
Start by exploring your HELOC options here to see how much you could borrow.
3 HELOC benefits you may not have known
Here are three perks of using a HELOC that homeowners may not be aware of.
You may be able to deduct the interest from your taxes
HELOCs are tax-deductible if used for IRS-eligible home projects, giving them a clear advantage compared to other credit options. "Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer's home that secures the loan," the IRS says. "The loan must be secured by the taxpayer's main home or second home (qualified residence), and meet other requirements."
Compared to the interest you'll get stuck paying in full with a credit card or personal loan, this feature makes HELOCs particularly attractive now. Learn more here today.
You only pay interest on what you use — not what you borrow
Another favorable feature of HELOCs? Borrowers will only pay interest on the amount they ultimately use, not the full amount of credit they applied for. So if you apply for a HELOC for $20,000 but only wind up using $10,000 of that amount, that's what you'll pay the interest on.
Compared to home equity loans, which require borrowers to pay interest on the full amount withdrawn, this is an appealing and cost-effective feature for borrowers to use to their advantage.
Interest rates are variable
While it may be possible to get a fixed HELOC interest rate, most come with variable rates. This could mean paying a higher interest rate in the future, but it generally means paying a lower rate now. You'll need to be vigilant and monitor the larger rate environment so you know when — and by how much — the rate is going to increase. But if you're looking to pay the lowest interest rate possible now, the variable rates HELOCs come with can effectively help you make that happen.
Learn more about the benefits of a HELOC here.
The bottom line
There aren't many favorable credit options available in today's market, but HELOCs have substantial benefits that homeowners should at least familiarize themselves with. If owners use it for IRS-eligible purposes, they may be able to deduct the interest they paid from their annual taxes. Borrowers will also only be responsible for paying the interest on the amount used — not the full amount approved. And they could wind up securing a lower interest rate than some other credit options, as rates on HELOCs are typically variable and minimal to start.
