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Home Buying & Improvement
See how a HELOC can help you pay for home improvements within your budget
A home equity line of credit (HELOC) is frequently used to pay for renovations that boost property value. HELOCs are popular with borrowers because they tend to feature low rates and money on demand.
A HELOC is like having a credit card that’s backed by what your home is worth.
You can borrow money up to a certain limit, based on your home’s value minus what you still owe. That’s basically what the word “equity” means in “home equity line of credit.”
How does a HELOC work?
You would apply for a HELOC from a financial provider of your choice – it doesn’t have to be your mortgage lender. Once your HELOC is approved, you can draw money as you need it and pay it back over time.
How long is a HELOC good for?
HELOCs typically feature a 10- to 15-year term and often include a draw-period (when funds can be withdrawn).
Benefit and risk
The interest paid on a HELOC is usually tax-deductible1 which is a plus. However, the main risk is that if the borrower fails to repay the HELOC, the lender could foreclose on the house (because it secures the loan).
To see if a HELOC is right for you, let’s explore some DOs and DON’Ts.
DO: Improve your home
One of the most reliable investments you can make with a HELOC is remodeling or improving your home. That’s because the money you put into your home may pay off when you sell it.
Updating a kitchen or bath, installing new appliances, vinyl siding, or energy-efficient windows could potentially increase the value of your house and your quality of life.
DON’T: Think of a HELOC as "free money"
People can be tempted to spend recklessly by drawing money from their HELOC.
With all that spending – say, for a new wardrobe or travel – a borrower could owe more than their home is worth. When it’s time to sell the house, instead of breaking even or turning a profit, the borrower could lose money on the sale.
DO: Consider it for an emergency fund, if needed
Financially savvy people set money aside to pay for unexpected events like a job loss or a major illness.
You might want to use a HELOC for extra peace of mind.
Once the HELOC is approved, the money’s there if you need it. And if you don’t touch it, all the better.
While it’s not as ideal as savings, it can be better than racking up credit card debt or taking out payday loans.
DON'T: Use a HELOC to pay for everyday expenses or luxury items
You’ve worked hard to make your mortgage payments and create equity in your home.
Avoid using a HELOC for anything that doesn't help improve your financial position in the long run.
Never use it to pay for basic expenses like clothing, groceries, utilities, or insurance. You’re better off budgeting or saving for them. And never use a HELOC for luxury items that will lose value as soon as you buy them.
DO: Consider a HELOC to start a business
If you've been thinking about opening a small business, financing that dream can be a struggle.
Your home equity line of credit can help cover a portion of your start-up expenses. Consider using it in conjunction with small business loans and other resources to diversify your risk.
A HELOC’s repayment terms and favorable interest rates can make this a viable option for your new venture.
Information and recommendations may have changed since this article was written.
1. Check with your tax advisor regarding tax deductibility.
2. Actual interest rate will be based on overall creditworthiness. The APR will be set when the application is submitted and will be indicated on the loan agreement. Variable rates may increase over time. All Lines of Credit require a minimum limit of $10,000 and are available in New York State and Pennsylvania counties of Susquehanna, Bradford or Wyoming. Broadview FCU NMLS Identifier: 458314. Broadview membership is required.
3. All loans are subject to creditworthiness. Title insurance may be required and is paid by the borrower. Closing costs paid by Broadview, on behalf of the borrower, will be paid on loan amounts up to and including $250,000 and will be added to the payoff amount of the loan if the home equity is paid and closed within three years of loan closing. The most common amounts for closing costs are estimated between $0 and $6,500 but depending on location and other factors it could be higher or lower. For loan amounts greater than $250,000, or total combined Broadview home equity loans exceeding $250,000, all closing costs will be paid by the borrowers at the time of closing.
