Couple picking out paint samples.

What to know about using a home equity line of credit.

Perhaps you’ve been dreaming about a remodel for your growing family — or you want to consolidate your high-interest debt. Good news: If the value of your home is greater than your mortgage, you can probably borrow money against your home’s equity. A home equity line of credit (HELOC) may be a way to access the funds you need to reach your goals. To help you understand what it is, how it works and ways to use it, we’ve broken it all down for you.

How a HELOC works.
A HELOC is a revolving line of credit that is borrowed against your home’s equity using your home as collateral. You’re approved to borrow a set amount based on the equity you have in your home – similar to a credit limit on a credit card – and this is called your approved limit. You can use as much or as little of it as you want, as you need it. This makes a HELOC a convenient and flexible borrowing option for reaching a goal or covering an unplanned expense.

With a HELOC, you make a monthly payment to repay what you’ve borrowed, and you accrue interest only on the funds you use. Similar to a credit card, your available credit replenishes as you make payments, so you can use it again and again. Also, the interest you pay on a HELOC may be tax deductible if it’s being used for significant home improvements. Consult with your tax advisor for requirements.

It’s a good idea to review your financial goals and your budget and plan how you’ll use – and repay – your HELOC funds each month. Since you use your house as collateral, it’s crucial that you pay off your HELOC.

Five ways you can use a HELOC to finance your goals.

  1. Improving your home.
    Whether you’ve been dreaming about adding more square footage, or making much-needed upgrades like new carpet, replacement windows or a new roof, you may be wishing you had a little extra to fund the project. As it turns out, home renovations and improvements are among the most popular uses for a HELOC. It can be a good short-term investment in your home to increase its value in the long term, putting you in a stronger financial position when you’re ready to sell.

  2. Getting married and starting a family.
    As you plan for some of life’s biggest (and most expensive) milestones, you can easily access cash you need through a HELOC. That way you can focus on putting together that guest list or assembling the crib.

  3. Planning for the unexpected.
    A HELOC can act as a financial safety net for unexpected events, which keeps you from having to use high-interest credit cards. From medical bills to costly car repairs or a water heater replacement, a HELOC can be a smart backup plan for emergencies.

  4. Furthering your education.
    With the cost of college tuition on the rise, a HELOC can help you finance continuing education courses and degree programs. The interest rate on a HELOC may also be lower than other types of education loans.

  5. Consolidate your debt.
    If you have high-interest debts, such as credit cards and personal loans, you can consolidate them into one lower-interest monthly payment through your HELOC. With the lower interest rate, you can save more money in the long run and potentially pay off your debt sooner. That can free up more money in your monthly budget to pursue other goals.

It can often feel like goals are more like dreams – just out of reach. But with the financial power of home equity, you can start to act on your plans. Be sure to go over the options – as well as the pros and cons – of a HELOC with your personal banker to ensure it’s right for you. You can learn more and get started with a HELOC from Commerce Bank by visiting our website.