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The difference between the appraised value of your home and the balance of your mortgage is your home’s equity. Borrowing a portion of this equity via a home equity line of credit may be the smart solution to financing large expenses, such as home improvement projects, medical bills, or higher education.

A home equity line of credit typically has an interest rate that is lower than other types of credit, making it an attractive financial product. However, you should consider the risks: What You Should Know About Home Equity Lines of Credit

MAX provides Home Equity Loans and Home Equity Lines of Credit to help you finance your needs.
Here are some ways you can use your interest-free home equity line of credit:

Home Improvement

The most common and popular use of HELOCs are home improvement projects. Major home improvement projects can be costly. How will you finance the necessary tools, supplies, and materials? Are you doing the project yourself, or hiring contractors? Will you need to pay for dumpsters or trash removal? The expense of a major home improvement project adds up quickly.

It’s makes since to use the equity in your home for remodeling projects because the home improvement projects tend to increase your home’s value. Your return-on-investment (ROI) in a home remodel is the percentage of money spent on a project that you are able to recoup when the home sells – both a home’s equity and your return on its investments aren’t actualized until you sell the home.

Debt Consolidation

The two most obvious advantages to using a HELOC to consolidate high-interest debt are the lower interest rates and tax benefits. In comparison to other financial products, like credit cards, most HELOC products have significantly lower interest rates. The interest you pay on HELOCs is usually tax-deductible. Consult your tax professional to understand your personal situation.

Paying off multiple credit card balances with money from your HELOC will result in one monthly bill. Chances are pretty high that the new interest rate will be significantly lower than the rate you are paying on your credit cards, and it simplifies your financial budget strategy.

There are risks to using HELOCs for debt-consolidation. For one, your house is on the line. If you don’t pay on your HELOC, you could be foreclosed on. Also, if your home drops in value while you owe money, you could find yourself owing more on your home than it is worth.

Higher Education

A HELOC is one of the most common choices for parents choosing to utilize a home loan to pay for school. A HELOC provides the flexibility many parents are looking for, making it an attractive solution to help cover tuition costs. A HELOC is often easier to obtain and funds are faster to access than traditional student loans. Also, the U.S. Department of Education imposes annual loan limits on federal loans. These loan caps can limit a family’s flexibility, making a HELOC one solution for adequate borrowing power.

Typically, loan options for higher education have higher interest rates than a HELOC. However, these other loan options typically come with more protections – loan deferment, flexible repayment options, ability to discharge the debt, and other options. You should also consider that taking out a HELOC can be counted toward your estimated family contribution on financial aid forms, and reporting of a HELOC on such forms often depends on the timing of when funds hit your account.

Of course, the risk with any home equity loan product is that your house is collateral. If you can’t pay back the loan, losing your home would be a high price to pay for funding a college education. The risk of losing a hard asset to gain a soft asset, like education, may not be worth the risk to many parents.

Medical Expenses

An unexpected health crisis can cause financial hardship on any family. Some homeowners may choose to turn towards a HELOC is a financial solution. Many customers find that a HELOC can be helpful for recurring expenses like medical bills. Some people choose to use their HELOC to pay for expenses while waiting for insurance reimbursement.

Again, while a HELOC can be a reasonable short-term solution, it’s important to take into account the risks involved. A HELOC adds an additional lien on your property. Before relying on a HELOC to cover medical expenses, you must ask yourself if you are able to afford both your existing monthly mortgage payment (if you have one) and the new home equity line of credit payments.

Home equity lines of credit have worked for homeowners with financial needs and can be beneficial. It’s important to have a plan and discipline when drawing on your home’s equity.

Certain restrictions apply. For qualified borrowers. Equal Housing Lender.