Financial Wellness

5 Financial Goals and Considerations You Can Achieve with a HELOC

A CEFCU HELOC can help you realize many of your financial goals.

A Home Equity Line of Credit (HELOC) is a smart way for a prudent homeowner to finance many financial goals. This type of loan offers flexibility and savings by allowing the borrower to use funds as needed and pay only on the amount used instead of a lump sum.

Many homeowners cover the cost of home improvements, consolidate debt, college, and unexpected expenses by tapping into their home’s equity with a HELOC. Rising home prices in some markets can pave the way for increased home equity. 

1. Home Sweet Home
Make improvement and upgrade the home you already have.

If you like your neighborhood, there may be a way to upgrade your home features — an open floor plan, granite kitchen counters, home office, or a deck — that would make your home the house of your dreams.

Home remodels can be costly and for larger projects require city permits and approval. A HELOC can help finance home renovations or repairs, from a new roof to refreshed landscape to architectural designs, and make your home projects more affordable.

Remember, not all renovations increase a home’s value. So, if you choose to add a koi pond, chef’s kitchen, or other feature, do it because you will enjoy it not because you expect to recoup the cost when you sell.

2. Consolidate and Save
Manage multiple payments and pay off debt.

A HELOC can help consolidate the debt of credit cards, medical bills, or other expenses, and make it more manageable. You can save in interest charges each month with a lower rate compared to credit cards, which typically have rates of 18% or higher. Plus, you may be able to pay off the debt faster with less hassle by keeping track of only one payment.

Keep in mind that you are turning unsecured debt to secured debt. A HELOC is secured by your home, so be confident you can afford the payments or you could lose your home. And, be careful not to run up new debt on those freshly paid-off credit cards.

3. College Education
Pay for my child’s education with another financial aid option.

A home equity loan certainly can be used to pay for college education, after all alternatives such as scholarships, grants and federal student loans options are exhausted. However, parents must remember that just like consolidating debt, you are turning an unsecured debt into secured debt by collateralizing your house. If parents can’t pay back the loan, they risk losing their secured asset.

Another downside is that HELOCs don’t offer flexibility during periods of financial hardship. Students who borrow with federal student loans may request loan deferments, forbearance, and sometimes even loan forgiveness. Even private student lenders may lower interest rates or offer loan modifications to help borrowers avoid default. With a HELOC, there is no flexibility during hard times.

4. Retirement Ready
Unlock funds to accommodate your future needs.

Using a HELOC when you’re a few years away from retirement could help unlock cash flow and allow you to get your home retirement-ready. HELOC funds may be a smart way to fund home improvement projects, such as the installation of design features like a first-floor master bedroom that will allow you to stay in your home for as long as you want after you retire.

Additionally, having an open line of credit as you enter retirement provides you a ready source of funds for unexpected expenses in the future, in case you don’t want to immediately pull money out of tax-deferred accounts or from a volatile or depressed financial market.

Applying for a HELOC while you’ re still working may make it easier to qualify for a larger line than you might receive after you’ve retired.

5. Prepared for the Unexpected
A cash reserve when and if you need it.

A HELOC can provide a fallback for unexpected costs from an expensive hospital visit or any kind of financial emergency. Even with “rainy day funds” set aside, you’ll have peace of mind knowing there is additional cash available in case an immediate need arises.

Expensive discretionary purchases, such as vacations or an extravagant wedding, are generally not the best reasons to draw on your home equity. Remember that your collateral for your HELOC is the place where you live, your home. Be sure to carefully consider all the options that might be available to you.