What are the benefits of a Home Equity Line of Credit?

1. Lower Interest Rates

One of the biggest advantages of a HELOC is its lower interest rates. Because the loan is secured against the equity of your home, lenders can offer lower interest rates than other forms of unsecured loans (like personal loans and credit cards).

It’s important to note that unlike a fixed-rate loan, HELOCs typically have variable interest rates, which means they are subject to fluctuation as dictated by federal interest rates.

Additionally, by obtaining a HELOC through a credit union, you are likely to find lower interest rates and fewer fees than through a for-profit bank. Because credit unions are not-for-profit, they tend to have their members’ best interest in mind, and will offer personalized service to get the best options available to you.

2. Flexibility

Another benefit of a HELOC is its flexibility. Differing from traditional loans where you receive a lump sum payment upfront, a HELOC is a revolving line of credit that allows you to access funds as needed.

You can borrow up to your credit limit and pay it back over time. And, because you only pay interest on the amount you borrow, you receive a money-saving benefit.

3. Tax Deductibility

Often, the interest paid on a HELOC is tax-deductible. For example, if you use the loan to buy, build, or substantially improve your home, the interest may be eligible to be deducted.

Keep in mind that this deduction only applies if you are using the funds to improve the property which backs the HELOC. It’s important to consult with a tax professional to determine if you qualify for any tax deductions related to your HELOC.

4. Versatility

A HELOC can be used for a variety of purposes. Many homeowners use a HELOC to finance home improvements or renovations, but they can also be used to pay for unexpected expenses, like medical bills or emergencies. Additionally, a HELOC can be used to finance large purchases or to consolidate high-interest debt.

Note: Borrowing against your home has some risk if you are using the funds to pay for things that are outside of your budget and do not add value. Because a HELOC is backed by your home, if you fail to pay it back, the bank could foreclose on your home. While HELOCs typically have generous repayment periods, you risk negating the benefits of your home’s equity if you spend the money carelessly. As such, it’s important to use your funds accordingly.