3 times a HELOC is worth it
If you're a homeowner looking for extra ways to make ends meet and access extra cash you have multiple options to choose from.
You can consider a traditional refinance, which can potentially lower your monthly mortgage payment, depending on the initial interest rate you paid. You could also pursue a cash-out refinance, in which you take out a mortgage loan for a larger amount than what you owe (keeping the difference for yourself as cash). Older homeowners can also complete a reverse mortgage in which they can access a portion of their home's equity.
If none of those sounds like the solution then homeowners should turn to a home equity line of credit (HELOC). With a HELOC, you'll apply for a specific amount of credit based on the equity you have in your home at the time of the application. You can then use that credit for a variety of items.
If you think you could benefit from taking out a HELOC then start exploring your options here now or use the table below to check your eligibility.
3 times a HELOC is worth it
When is the best time to get a HELOC? There are actually multiple scenarios when a HELOC is worth it, three of which we will explore below.
When home values are high
You generally need at least 15% to 20% equity in your home for a HELOC but if you have more you can use that, too. In fact, many lenders will let you take up to 80% of your home equity (assuming your credit score is high and other qualifications are met). But even if you have made just a minimum dent toward your mortgage principal you may still be able to secure a substantial line of credit if your home value has increased since you first purchased your home.
While home values have been hurt by rising interest rates (some cities have seen significant drops), values elsewhere are still strong - making a HELOC worth pursuing now before any market activity affects your home's price.
"The national median single-family existing-home price increased 4.0% from one year ago to $378,700," the National Association of Realtors noted in February. "Approximately nine out of 10 metro markets registered home price gains in the fourth quarter of 2022 despite mortgage rates eclipsing 7%," the association noted.
You can see how much of a HELOC you can get here now or use the table below to check your local offers.
When making house repairs
If you're planning on making significant repairs and renovations to your home then skip a personal loan or credit card and instead pursue a HELOC. Unlike those other forms of credit, interest on a HELOC can be tax-deductible at the end of the year, assuming it's used properly.
"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 explains. "The loan must be secured by the taxpayer's main home or second home (qualified residence), and meet other requirements."
As usual, make sure you know what exactly qualifies and doesn't before filing your return. A tax preparation company can help.
When you're not sure how much you need
If you know you need extra money - say for a home repair or an upcoming major expense - but aren't sure exactly how much you may need then a HELOC is worth pursuing. That's because unlike some other traditional forms of credit in which you'll have to pay interest on the full amount approved even if you don't fully use it. A HELOC will only charge interest on the specific amount you use. For example, if you apply for a line of credit for $100,000 but only end up using half of that then you'll just have to pay interest on the $50,000 - not the full amount.
Start by exploring HELOC options and interest rates here now so you have a better idea of what to expect.
The bottom line
There are multiple ways homeowners looking for ways to make ends meet can rely on their home for cash or credit. A HELOC is one viable option to investigate. It's especially valuable when home prices are high (and equity is substantial). But it's also useful for home repairs and renovations (due to its favorable tax deduction) and when the borrower isn't exactly sure how much they need (since they'll only pay interest on what they use, not the full amount they were approved for).
