Over the next two days, we’re going to look at a few ways to utilize the equity you have worked hard to build up in your home. For some, a home equity loan is preferred; others are more comfortable with a home equity line of credit (HELOC).
Back in January we discussed some basic terms and phrases that are used when referring to a HELOC. Be sure to check out that post to be more familiar with some of the language that is commonly used when speaking about utilizing home equity.
Today, let’s look at five reasons to consider a HELOC.
1. Emergency Fund
What would happen to your savings account if your air conditioner doesn’t work this spring/summer?
Over the last few weeks, we’ve spent a lot of time talking about saving money. However, there are times when “life happens,” and you need to have a safety net (or “rainy day” fund). Having a line of credit available is a great way to maintain – and grow – your savings, and have the confidence that you can handle most financial roadblocks that come your way.
With a line of credit, you have control over how, and when, the funds are drawn. You can also decide what the funds are used for; perhaps you can’t put your entire summer vacation on credit card(s).
A HELOC affords you the flexibility to draw funds as you need them. And, unlike a loan, the line of credit stays open and funds are available for use throughout the term.
3. Pay Back Without Penalty
Some loans charge a penalty to pay off the note before the term is up, known as a prepayment penalty. With a line of credit, however, there is no penalty for paying the balance to zero. And, as we noted above, the credit remains available for future use.
4. Ease of Use
If you need money for an emergency, or if you’re considering some home improvements this Spring, the process of accessing funds from your HELOC is as easy as using your checking account.
5. Tax Benefit
If you have a credit card right now, you’re using a line of credit. However, the most significant difference between a HELOC and your credit card comes in April; any interest you pay on a HELOC is tax deductible, while any interest you pay on a credit card is simply money out of your pocket.
When filing your taxes this year, consider how much interest you paid to your credit cards in 2012. Also, if you outstanding debt, this is a great way to consolidate those accounts into one, central location. Ask your preferred tax advisor about more specific HELOC tax benefits.
For more information about home equity loans and lines of credit at Popular Community Bank, click here.