HELOC Questions Homeowners Should Know

with Stubborn inflation and high prices for everything from grocery store per Veterinary careMany Americans are looking for new ways to spend extra.

Although traditionally included to do so Credit card And personal loanHomeowners may find other options more worthwhile. Home equity loan And Home Equity Lines of Credit (HELOCs) Two methods. These forms of credit usually come with lower interest rates than other options. If used for qualifying purposes, the interest paid can be deducted when it comes time to file your taxes.

As with most financial products or services, homeowners should familiarize themselves with the nuances of a HELOC to get the most value from this particular product. In this article, we’ll break down the answers to three important questions you should know.

If you think you might benefit from a HELOC, start exploring your options here now

HELOC Questions Homeowners Should Know

Are you thinking about applying for a home equity line of credit? If so, be prepared to answer the following three questions.

What are you planning to use the HELOC for?

A HELOC can basically be used for anything the homeowner sees fit. However, there is Good time to use a HELOC Compared to others. For example, a HELOC is a great way to finance major home improvements and repairs. Unlike other forms of credit, you pay interest A HELOC can be tax deductible If used for IRS-qualified home repairs.

“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.”

So, if you get a HELOC now, be sure to save all the appropriate paperwork to file when it’s time to file your 2023 return. You can now easily explore your local HELOC options to see how much you qualify for

Do you want to use your current bank?

There’s a misconception that when applying for a HELOC or home equity loan you automatically have to use the lender that has your mortgage. This thinking makes sense since you’re deducting equity from a loan you’ve been paying off for years (if not decades). But it doesn’t always happen. You can actually get a HELOC from a lender that is different from the one you currently have a mortgage loan with.

This doesn’t mean you won’t eventually use your current lender. Rather, it means that you should shop around to secure the lowest rates and best terms available in the market. Your current lender may be your best option. But it’s also possible that another bank will offer more favorable terms for your needs. So don’t automatically commit to taking out a HELOC with your current lender. Do your research and sort through all the options available to you first.

When are you planning to apply?

Timing is important in all financial decisions but arguably never more so than when applying for a HELOC. Because HELOCs allow homeowners to access the equity in their homes it is beneficial to operate when the market is favorable and home values ​​are high. If you wait and let the equity in the home values ​​drop, you can potentially withdraw, too.

Remember: home equity isn’t just what you paid for your mortgage, it’s what your home is worth in the current market. Let’s say you bought a house worth $500,000 and have since paid it off at $400,000. Your home has increased in value by $600,000 while making your monthly payments. That means you have $200,000 in equity – not just the $100,000 you paid down. Conversely, if you live in an area of ​​the country where home values ​​have fallen in recent months you may not be able to take out as large a HELOC as you would otherwise. So be sure to time your application precisely – this will affect exactly how much you can get.

Bottom line

A HELOC can be a smart way for homeowners to fund extra expenses or major home repairs and improvements. To get the most value from this form of credit, homeowners should know what they plan to use. Homeowners should also know if they want to use their current lender or a different one (they may be able to get better rates and terms with a different institution). And they should try to time their application as carefully as possible so they can get a HELOC when they have plenty of home equity.

If you think a HELOC sounds like a good fit for your needs, start exploring your options online here or through the table below.