While looking into options for borrowing money, you may stumble across the idea of applying for a home equity line of credit (HELOC). What is a HELOC, and is it the right choice for you? This post explores scenarios where a HELOC might be suitable.
What is a HELOC?
A HELOC is a line of credit you can access by borrowing against the equity in your home. It is similar to a second mortgage, but a second mortgage is disbursed as a lump sum. You can use a HELOC similar to how you would use a credit card.
Scenarios Where a HELOC May Be a Good Fit
Here are a few examples of common uses for home equity lines of credit.
- Home renovations or upgrades: One of the most popular uses for a HELOC is to finance renovations or upgrades to your home. You are borrowing against your home equity, but you are using the funds in a way that is a direct investment in your home. Your improvements should increase your home’s value. So, this use for a HELOC makes a lot of sense.
- Loan consolidation: Sometimes people take out a HELOC when they need to consolidate high-interest debts. The funds from the HELOC can be used to pay off those debts, leaving just the HELOC to manage. You also can use a HELOC to keep up with loan repayments. Just make sure that you are not digging yourself into a hole. You need to be able to afford your lifestyle
- Emergency fund: Finally, if you do not have an emergency fund, you may consider a HELOC. It will give you access to funds you can draw from if you have an urgent need. But if you do not touch those funds, then you do not have to worry about paying interest (more on that shortly).
There are situations where you are allowed to use a HELOC, but it is not necessarily a good idea. One example would be paying for an automobile. Using a HELOC to do that does not make sense since the automobile’s value depreciates.
It is also not wise to use a HELOC as a crutch for an unsustainable lifestyle. If you are spending money faster than you are earning it, you need to address that problem, rather than trying to duck behind a HELOC.
Why choose a HELOC rather than a second mortgage? Each has pros and cons, and second mortgages are ideal for some scenarios, like when you need to borrow a large amount all at once. But HELOCs have the benefit of giving you the flexibility to borrow only what you need. Since you are charged interest only on what you actually use, this can keep your costs down.
Apply for a HELOC in California
If you are interested in applying for a HELOC in Oakhurst or elsewhere in CA, please give us a call at (559) 540-2275. We can get you the flexible financing you need.
