If you own a home, you’ve likely heard the term Home Equity Line of Credit, or HELOC, a few times. A HELOC is a line of credit where you borrow money with the equity of your home as the collateral. Equity is how much your home is worth minus how much you owe on it with a primary mortgage. Sometimes, HELOCs are called taking out a second mortgage on your home.
Since it uses your home’s equity as collateral, HELOCs should not be used frivolously. HELOCs allow you to borrow during a 10 year period, though Pioneer does offer HELOCs with different borrowing periods, and you can pay it back over a longer period time, usually 20 years. You should only use a HELOC if you feel your income is stable and you plan on staying in the home for a long time.
HELOCs are a powerful financial tool to be used in a variety of situations. We’ve created a list of many reasons to use a HELOC and how it can benefit your life.
Pay for Home Repairs and Renovations
A common reason to use a HELOC is to make your home nicer. In this case, the HELOC is acting like a form of investment, improving your home to not only increase its value, but make it more comfortable to live in. This type of HELOC falls into two groups: repairing overtime damages to the home, or renovating it to look new and different.
When it comes to repairing a home, it might feel like everything is breaking all at the same time. This might be because one ignored problem leads to several more problems. A leaky roof could lead to electrical problems, water damage, and mold, all in one go. If you feel like repair costs will be too much, a HELOC could take some of that burden off.
Some common repairs that might push you to use a HELOC includes:
- Roof replacement
- Foundation repair
- Replacing a water heater
- Heating and AC repair or replacement
- Fixing termite damage
- Repairing water damage
- Plumbing and sewage repairs
Maybe you want to transform your current home into your dream home! Home renovations don’t come cheap, especially if you hire contractors to help. Whether it’s adding onto your home, updating it to look more modern, or putting in new landscaping, HELOCs can help with your goals.
Common home renovations to use a HELOC for:
- Refacing cabinets
- Building a deck
- Bathroom or bedroom remodel
- Kitchen remodel
- Adding another room
- Replacing windows
- Basement or attic conversions
If you have an ever growing mountain of debt, like student loans, credit cards, or medical debt, you can use a HELOC to pay them off. This allows you to consolidate your debts into a single payment, and give you some breathing room if money is getting tight.
With a HELOC, you only make payments on the interest during the draw period, then make monthly payments after the draw period is done. This could push some debts to ten years down the road where you might be in a better place financially. You might also enjoy a lower interest rate and only needing to make one payment a month rather than several.
Pay for a Child’s College
If you have a teenager heading to school soon and need a way to pay for it, a HELOC is a possibility. Before taking this approach, be sure to look at all other options to make sure it’s the best option.
The biggest item to consider is what type of interest rate you would get with a HELOC versus taking out a student loan. Currently, the interest rate for a federal direct student loan is 4.99%, while a HELOC could be lower or higher than that. A factor to consider is that some HELOCs have variable rates, while others are fixed. A low variable interest rate might go up later, or a high rate go down, while the student loan rate is fixed.
Using a HELOC to pay for a child’s college gives you flexibility, both with paying for it and paying it off later. It is an option to consider, though one that should be carefully done.
A Handy Retirement Tool
If you are approaching or already in retirement, a HELOC is a very useful tool. Likely, you’ve already paid off your home, are on a limited income, and might have some larger expenses on the horizon. A HELOC can be used to fund several potential or necessary projects.
For example, if you want to purchase a rental property for extra monthly cash flow or cover a lack of cash during some months, a HELOC can be a huge help. Other common uses for a HELOC could be making your home more accessible, like adding a ramp to the front door or putting in a chair lift to your stairs.
A HELOC is also useful if there is a drop in the stock market and your retirement fund takes a dip right before you plan on retiring. Rather than putting off retiring for a few years as your funds rebuild, you can use a HELOC to cover those years and still retire on time.
Emergencies always come at the worst times and you might not be prepared for them. Whether it’s a car accident, medical bills, or some other unexpected expense, a HELOC can help cover it. Plus, with a longer draw period, you can keep it around in case other emergencies pop up in the future.
Not only does this give you the ability to pay for emergencies, but pushes them down the road to give you time to prepare and pay it off later. If you have a massive medical bill that would ruin you financially right now, you could use a HELOC to worry about it ten years from now, giving you time to save up and prepare to pay for it.
Pioneer offers three different HELOCs to our members. They have varying draw and repayment periods, rates, and other benefits so you can pick the right one for your situation. Whether you want something quick with a fast draw period or something long term, Pioneer has something for you.
Learn more about Pioneer's HELOCs