Homeownership remains a defining characteristic of the American Dream, according to a recent National Association of Realtors Aspiring Home Buyers Profile study1. There are many benefits to homeownership, but the ability to use home equity to reach other financial goals is one that many homeowners may not have considered. United States homeowners have over $15 billion in home equity2. Many homeowners might not know they can use a Home Equity Line of Credit (HELOC) to access those funds.
Many often compare a HELOC to a credit card, but there are several key differences. The primary distinction is that a HELOC is only available to creditworthy homeowners. Homeowners’ amount of available home equity reflects borrowing limits. While most people have credit cards without collateral requirements, a HELOC uses the home as collateral for the loan.
Similar to credit cards, HELOCs:
- are assigned a preset credit limit
- have an available balance that fluctuates as borrowed funds are repaid
- have a variable interest rate; and
- allow eligible borrowers to access additional funds without re-applying
For example, an Elevations HELOC provides borrowers with easy access to funds via their checking accounts or an Elevations Home Equity Visa Card, with no application fee. Eligible borrowers access the revolving line of credit as they need it instead of receiving funds in one lump sum.
HELOC funds are often used to cover the costs of home improvement projects, such as room additions and kitchen remodels. But, borrowers can do more than upgrade their home with equity funds. Here are four surprising ways HELOCs help homeowners reach their other financial goals.
Homeowners can use a HELOC to pay off high-interest rate debts.
Double-digit interest rate credit cards make it difficult to tackle debt. Paying more than the minimum monthly payment can help reduce debt faster. Eligible borrowers can use a low-interest rate HELOC to wipe out the debt and potentially save thousands in finance charges. Homeowners can eliminate other high-interest debt payments with a HELOC. These might include title loans, payday loans and private student loans. Since borrowers can use HELOC funds at their discretion, even lingering debts such as back taxes can be paid using loan funds.
Homeowners can use the money to pay for college tuition and other education-related expenses.
Students completing four-year degrees or graduate studies at private universities, and even some state colleges, find that financial aid fails to cover the full cost of attendance. Private student loans are available at most colleges and universities through national lenders but are often associated with higher interest rates, credit checks and stringent cosigner requirements for student borrowers.
A HELOC might be the answer to annual college tuition and other education-related expenses. Only use what you need each year and make payments on the amount borrowed.
Homeowners can pay off outstanding medical bills and upcoming medical-related expenses.
Out-of-pocket healthcare costs can quickly add up when unexpected illnesses or injuries occur. Some doctors and hospitals might agree to payment plans, while others require payment within 30 days or threaten collection activity. If medical bills are piling up, consider paying them off with a HELOC. As other medical expenses arise, use a low-interest rate HELOC to pay the balance.
Homeowners can use funds to buy a second or vacation home.
It’s possible to use the equity in your primary residence on the Front Range to buy another home. Borrowers will need to decide whether a new home loan or an equity loan is a better choice when considering the purchase of an additional property. Use a home equity loan calculator to help estimate the amount available to borrow against your primary residence.
Unlike credit cards, HELOCs offer homeowners a low-interest rate means of paying for a variety of expenses to help reach their financial goals. During the first 10 years of the HELOC, aka draw period, it’s possible to make interest-only payments on the amount borrowed. Learn more about the benefits of an Elevations HELOC by contacting us at 800.429.7626 or apply online today.*
*Approval is subject to credit, income, and collateral qualifications.