Understand Your Finances
How a Home Equity Line of Credit can help your family
Presented by Chase, the following story is part of a broader series designed to share tips and trends within the Mortgage industry.
If you're a homeowner, you could qualify for a unique financial product: the Home Equity Line of Credit (HELOC). HELOCs allow you to borrow money against the equity you have in your home and similar to a credit card, they offer a revolving credit line that you can tap into as needed.
"Equity is the market value of your home less what you owe on your mortgage balance," explains David Lopez, a Philadelphia-based member of the American Institute of Certified Public Accountant's Financial Literacy Commission.
With home values on the rise and interest rates historically low, HELOCs are an attractive option right now. Plus, according to Lopez, for most borrowers, there's the added benefit of a potential tax deduction on the interest you pay back.
However, since your home is on the hook if you can't meet your debt obligations, you'll have to be cautious, explains David Reiss, a professor at Brooklyn Law School and editor of REFin blog, which covers the real estate industry.
So, what are the most common reasons you might consider leveraging this tool? According to the Novantas 2015 Home Equity Survey, 50 percent of people said they opened a HELOC to finance home renovations, upgrades and repairs.
That was the case for Laura Beck, who along with her husband, used their equity to fund a substantial home renovation that doubled their square footage and home's value."The HELOC let us do a full renovation right down to re-landscaping the yard without being nervous about every penny spent," she says.
Interested? Here are a few of the most common reasons people leverage a HELOC:
Home improvement expenses
Upgrades to your home can increase the market value and not to mention, allow you to enjoy a house that is customized to fit your family's needs.
Pro Tip: Some improvements and energy efficient upgrades, such as solar panels or new windows may also score you a bonus tax credit, says Lopez.
Exchanging high interest debt (like credit cards) for a lower interest rate makes sense, especially since interest payments on your HELOC are usually tax deductible, says Lopez.
Pro Tip: Reiss stresses how important it is to "be cautious about converting unsecured personal debt into secured home equity debt unless you are fully committed to not running up new balances."
When faced with a situation in which money is the only thing preventing you from getting the best medical care, a HELOC can be a literal life saver, Reiss explains.
Pro Tip: If you need to pay an existing medical bill, however, try negotiating with the health care provider rather than use your equity, says Reiss. Often, they are willing to work something out with you, and you won't have to risk your house.
Reiss explains how a good education can improve one's career outlook, increase earnings, and has the potential of offering a strong return on your investment.
Pro Tip: Before turning to your equity for education costs, try to maximize other forms of financial aid like scholarships, grants, and subsidized loans.
No matter your reason for considering a HELOC, if used responsibly it can be a great tool, says Reiss. For information on how to qualify, speak to a banking professional to see if this is a good option for you.
JPMorgan Chase does not offer tax advice. Please consult your tax advisor regarding the deductibility of interest.
Dawn Papandrea is a Chase News contributor. Her work has appeared in Family Circle, Parents, Latina, WomansDay.com, and University Business magazine, among others.