As any savvy homeowner will tell you, protecting the investment in your home is a crucial part of ownership.
After all, a home is likely the largest investment many of us will make. While upgrades, renovations, and additions often help maintain or even boost a home’s value, these undertakings can be costly.
Thankfully, homeowners have an effective tool at their disposal—their home’s equity. By leveraging the equity in their home, homeowners can secure the funds needed to tackle delayed projects or even prepare for surprises down the road.
But modernizing your home is far from all that a HELOC can do. There are so many ways to put a HELOC to work for you.
What exactly is a SELCO HELOC?
Using the equity in a borrower’s home as collateral, borrowers and lenders agree to a maximum loan amount and term. SELCO adds flexibility by issuing the approved homeowner a Home Equity Visa card, which can be used anywhere Visa is accepted to access HELOC funds as needed throughout the draw period (typically between five and 15 years). This gives borrowers convenient access to their line of credit at each step in the process. Once the original project is complete, borrowers get continued access to their line of credit, and they pay only for the credit they actually use.
How can a HELOC be used?
Let us count the ways. Here are a few of the top reasons why homeowners take out a HELOC.
- Home improvements. Having quick access to funds for a remodel or renovations is typically the main reason why homeowners take out a HELOC. Before tapping into your equity, however, make sure the project is worth the cost and that the right form of credit is being used. As with any financial decision, due diligence is key. Not all home improvement projects are created equal, and every homeowner should first consider a project’s return on investment. If the loan funds are used specifically to upgrade the home that secures the loan, the interest paid is deductible on tax returns. But it’s wise to consult a tax adviser before getting started.
“Very few home-improvement projects come with a fixed price tag and a perfectly defined timeline,” said Michael Sauley, SELCO’s Vice President of Consumer Lending and Senior Consumer Credit Officer. “So, our HELOCs were designed for the way most homeowners complete their projects.”
- Paying off debt. A HELOC is a valuable tool for consolidating high-interest credit-card and healthcare expenses. Rather than juggling multiple payments and barely making a dent, you can put all your outstanding balances into one bucket and watch the debt melt away with a larger payment each month. Minimizing your overall balance may also have a positive effect on your credit score. Thirty percent of your score is determined by your credit capacity, so while paying off or paying down your cards will most likely improve that score, it also helps to keep at least one of those cards open (as long as you’re not stuck with annual fees).
- Handling unexpected expenses. A HELOC isn’t recommended as a replacement for emergency savings, but it can be used for other “surprises” that come up. Examples:
- Paying for vehicle repairs.
- Helping to pay for college tuition.
- Covering elder care and funeral expenses.
- Buying an investment property or investing in a small business.
- Footing the bill for large expenses. A HELOC can help make big-ticket expenses like weddings and vacations more manageable. The interest rate is usually lower than a loan or credit card, meaning you can reduce the overall cost of the event or item. Additionally, you can access a lump sum that can be paid off in installments.
- Paying taxes or legal fees. If you don't have enough money set aside, a HELOC can be an effective way to cover taxes and legal services in one lump-sum payment. Obviously, taking care of these expenses with your hard-earned money is the most optimal option, but a HELOC can be a safe alternative. Both are far better than paying with credit cards or relying on a personal loan as a last resort.
A HELOC is a convenient tool for a variety of uses, not just home improvements. Before taking the plunge, however, be sure to weigh all the pros and cons and make absolutely sure it’s in your best interest to take out another loan.
“For most of us, home equity is our most valuable financial asset, and homeowners should never treat their home’s equity frivolously,” Sauley said. “SELCO’s lending team works directly with our members to help guide them through the entire process and help maximize their investment.”
