Is a HELOC worth it?

Home ownership brings multiple financial benefits from one’s improvements Credit score per Tax deductions And more homeowners with significant equity in their home can also rely on their investments if they find themselves in need of a cash boost. It can take one form Cash-out refinancingA Reverse mortgage (for those 62 and older) or a Home Equity Line of Credit (HELOC).

The latter form allows owners to access existing equity in their home as a line of credit. It can be used for major home repairs, to pay off debt, or in any other way the homeowner sees fit. Although HELOC rates vary, they are generally preferable to taking out a personal loan or credit card.

So is a HELOC worth it or should homeowners look elsewhere if they need cash? This is what we will explore in detail below. If you think you might benefit from a HELOC, start exploring your options here or use the table below to check your eligibility.

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Is a HELOC worth it?

A HELOC can be a smart and effective way to access money tied up in the value of your home. Here are three reasons why a HELOC is worth it to you.

Low interest rates

If you need extra money a HELOC This can be a better way to get it than going the credit card or personal loan route. It’s easy to see why. As of February 22, 2023, the average interest rate on a credit card was around 24%. For personal loans, it was much lower but still came to around 11%. But a HELOC, at the same time, was about 7%.

The best terms are reserved for borrowers Best credit. This means a lower debt-to-income ratio and the more overall equity you have in your home, the better. But, if you need the money now, the interest rates that a HELOC can usually offer are worth it compared to other popular credit options on the market.

Not sure if you qualify for a HELOC interest rate? Plug in a few quick numbers here or use the table below to find offers based on your zip code

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Flexible use

HELOCs allow you to use as much or as little as the amount you apply for. So if you take out a HELOC for $10,000 but then realize you only need half that amount, you’ll only owe what you used — not the full amount. You won’t be forced to withdraw all the money at once. This is especially helpful because, with HELOCs, you’re responsible for paying interest on the money you actually use (nothing left over). This can help save a significant amount of money, if you stop taking out more credit than you actually need.

Interest may be tax deductible

All interest paid on a HELOC is not tax deductible. But if you use the credit to make significant home repairs, you can write it off during tax season.

“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.”

That said, you may only be able to deduct interest up to a certain amount so be sure to speak with your tax preparer or trusted financial advisor before accounting for this item when completing your return.

Bottom line

Helping homeowners in need of financial assistance should seriously consider going into a HELOC. This unique line of credit is usually worth it because the interest rate that comes with it is usually lower than what you would get with a personal loan or credit card. It can also be used in a flexible fashion and the owners will be responsible for paying interest on the money actually used. That interest, up to a certain amount, can be tax deductible.

Have more questions? Not sure if you qualify for a HELOC interest rate? Plug in some numbers here to find out now!

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