Top Ways to Use a HELOC Loan

A home equity line of credit (HELOC), sometimes referred to as a second mortgage, allows homeowners to leverage the equity – or financial ownership – of their home to establish a line of credit. As you pay down your mortgage loan and/or your home’s market value increases, your overall equity amount grows. A HELOC uses the value of your equity, borrowing against your house to fund a line of credit.

The loan typically begins with a draw period, or a predetermined length of time in which you can spend the money. The draw period is then followed by a repayment period. Just as it sounds, the repayment period is an established length of time used to pay back money that was withdrawn during the draw period.

How Lenders Determine How Much You Can Borrow Against Your Home’s Equity

Lenders typically use a formula that compares the value of your home – often conducted through an appraisal – against your remaining mortgage balance as a percentage. This percentage is then used to determine HELOC terms such as rate and amount. 

Why Choose a HELOC?

With your house securing the loan, a HELOC typically offers interest rates far lower than credit cards or personal loans. They can be used to fund a wide variety of purchases, making them a very valuable financial tool when used appropriately.

We’ve previously compiled five reasons to consider a HELOC loan, and we’re now sharing some of the best ways to incorporate one into your financial picture below.

Top Uses for a HELOC Loan:

1. Complete Home Improvements. Leverage your home’s existing equity to add value to your house. Instead of using savings, a HELOC can fund home renovations and repairs like a bathroom remodel, kitchen appliance upgrade, new roof, and more.
2. Lower Debt. In many cases, it can be advantageous to use a HELOC as a way to pay down debt. If your HELOC’s rate is lower than that of your existing debt, you’ll save money on interest and potentially be able to pay off debt faster.
3. Start or Expand a Business. A HELOC can provide start-up funds to turn your dreams of entrepreneurship into reality or offer extra money to help grow an existing business. Because the draw period will come to an end and repayments will be due thereafter, it may be more impactful to plan the timing of when you open a HELOC for this purpose.
4. Acquire Real Estate. Expand your real estate portfolio by using a HELOC to purchase another property. Depending on the amount of existing equity, a HELOC can provide a down payment or complete purchase of a second home, investment property, or rental.
5. Continued Education. A HELOC can be used to help pay for continued learning expenses. Student loans’ re-payment period typically begins after graduation, whereas a HELOC allows you to make payments as you go. This can be a helpful tool to minimize debt down the road.
6. Emergency Fund. Let’s face it – life is full of surprises. For some, it can be hard to get ahead of monthly obligations to establish a comfortable emergency fund. A HELOC can be a financial safety net or resource for unexpected payments; you’ll have access to money if you need it, but you’ll only have to repay what you use.

Final Thoughts

As you can see, a home equity line of credit’s versatility can be an asset to help you reach your goals – whether it’s to finally paint your house your favorite color, invest in yourself through school or business ventures, or help cover the cost of unpredicted expenses without draining your savings.

Get a HELOC Loan with TwinStar

Open new doors with a TwinStar Credit Union Home Equity Line of Credit. Enjoy a low rate with flexible and convenient access to equity in your home.

Unlock your home’s value and dream big! To get started, give us a call at 800.258.3115, apply online, or visit your local branch.