If you’re a homeowner looking for extra ways to make ends meet and access extra cash, you have multiple options.
You can consider a traditional, which can potentially lower your monthly mortgage payment depending on the initial interest rate you pay. You could follow a , so that you take out a mortgage loan for more than you owe (keeping the difference for yourself as cash). Older homeowners can also complete one Where they can access a portion of their home equity.
If none of these seem like a solution, homeowners should turn to a. With a HELOC, you apply for a certain amount of credit based on the equity you have in your home at the time of application. You can then use that credit for different items.
But when? There are actually multiple scenarios Three of which we will explore below
If you think you might benefit from a HELOC, start exploring your options here or use the table below to check your eligibility.
3 times the value of a HELOC
When home values are high
Typically HELOCs require at least 15% to 20% equity in your home, but if you have more, you can use that too. In fact, many lenders will let you(assuming your higher and other qualifications are met). But even if you’ve made at least a dent in your mortgage principal, you may still be able to secure credit if your home’s value has increased since you first bought it.
While home values are hurt by rising interest rates (significant declines), values elsewhere are still strong – building a HELOC now before any market activity affects your home’s price.
“The national median single-family existing-home price rose 4.0% from a year ago to $378,700,” National Association of Realtors As mentioned in February. “An estimated nine in 10 metro markets registered home price gains in the fourth quarter of 2022 despite mortgage rates rising 7%,” the association noted.
You can see how many HELOCs you can get right now here or use the table below to check your local offers
Time to repair the house
If you’re planning to make significant repairs and renovations to your home, skip a personal loan or credit card and pursue a HELOC instead. Unlike other types of credit, the interest on a HELOC can be tax-deductible at the end of the year, assuming it’s used properly.
“Home equity loan interest and lines of credit are deductible only when the borrowed funds are used to purchase, construct, or substantially improve the taxpayer’s home that secures the loan.” The IRS Explains “the loan must be secured by the taxpayer’s principal home or second home (qualified residence) and meet other requirements.”
As always, make sure you know exactly what you qualify for and what you don’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 big expense — it’s worth pursuing a HELOC if you’re not sure exactly how much you need. That’s because, unlike some other traditional forms of credit where you have to pay interest on the entire amount approved (even if you don’t use it in full), a HELOC will only charge interest on the amount you use. For example, if you apply for a line of credit for $100,000 but only end up using half of it, you’ll only have to pay interest on $50,000 — not the full amount.
Start now by exploring HELOC options and interest rates here so you have a better idea of what to expect.
There are several ways homeowners can rely on their home for cash or credit. A HELOC is a viable option to investigate. This is especially valuable when home prices are high (and equity is substantial). But it’s also useful for home repairs and renovations (because of its favorable tax deductions) and when borrowers aren’t sure how much they need (since they’ll only pay interest on what they use, not the full amount they’re allowed for).