6 Good Reasons to Leverage Your Property’s Equity

Estimated reading time: 3 minutes

Home prices have risen dramatically in the past few years. In the three-year period starting in January, 2020 to 2023, the median price of homes rose from $267,895 to $374,772 – almost a whopping 40% increase in value! Your home may be worth more than you realize, and it could be used as a source of some needed cash. 

You may feel sometimes as though your home is sitting on a pile of money, unavailable to you for expenses like renovations, large purchases, or college tuition. A Home Equity Line of Credit (HELOC) can be a beneficial financial tool for those looking to fund these significant expenses. Here are six reasons why:

  1. LOWER INTEREST RATES
    Although the current environment for interest rates makes this more difficult, HELOCs generally offer lower interest rates than credit cards or personal loans because your home secures the line of credit. This can result in significant savings over the life of the loan.
  1. FLEXIBILITY
    HELOCs offer flexibility in how and when you use your funds. You can borrow as much or as little as you need up to the approved limit during a specific window of time. You only pay interest on the amount you actually borrow.
  1. TAX BENEFITS
    The interest you pay on a HELOC may be tax-deductible if the funds are used to buy, build, or substantially improve the home that secures the loan. This could potentially lower your overall borrowing costs. It’s still very important to consult with a tax advisor to understand how this could apply to your situation.
  1. COST-EFFECTIVENESS FOR LARGE EXPENSES
    If you’re planning substantial home renovations, a HELOC could be a cost-effective way to finance them. The lower interest rates and potential tax benefits can make a HELOC more attractive than other financing options.
  1. POTENTIAL FOR HOME VALUE INCREASES
    If you use the HELOC for home improvements, those improvements may increase the value of your home, which over time could offset some of the debt taken on by using funds from the HELOC.
  1. FUNDING EDUCATION COSTS
    Given the escalating costs of higher education, a HELOC could be a good option to fund college tuition and related expenses. Again, the HELOC interest rates may be lower than private student loans. This could result in substantial savings and you only would need to borrow against the HELOC the funds needed for a specific semester at the time the tuition is due. However, given today’s interest rate environment, it’s wise to check on private student loan rates as well.

It’s also important to consider the risks associated with HELOCs. Because your home is used as collateral, it could be at risk if you’re unable to repay the funds borrowed as required by the terms of the HELOC. Depending on what type of HELOC you obtain, a variable interest rate for a HELOC could also rise over time.

As with any financial decision, you should ALWAYS consider your personal financial situation, understand the terms of the HELOC, and consider all of your options before deciding to take out a HELOC. If you would like a recommendation for a mortgage broker who will provide you with good advice about a HELOC, give me a call any time!