Financial Education

May 14, 2018

When you’re facing a large expense, such as a home remodeling project, college tuition or a pile of credit card and other debt, the question arises of how best to pay for it. One popular and attractive option for homeowners is to use your home equity. Your equity is the current market value of your home minus your outstanding mortgage balance. The amount increases as you pay down your mortgage and as property values rise.

Home prices across the country have been rising recently, which may give you more equity to work with. Now could be the perfect time to use your equity to finance the things you’ve been dreaming of.

Advantages add up

Benefits of using a home equity line of credit (HELOC) include:

Lots of borrowing power. Limits vary from one lender to another, but you can typically borrow up to 80 percent of the equity you have in your home. For example, if your home is worth $180,000 and you owe $100,000 on your mortgage, your home equity is $80,000. If your lender allows you to borrow up to 80 percent of your equity, that’s a $64,000 credit limit on your HELOC.

Low interest rate. Since your home serves as collateral for the loan, lenders are able to offer lower interest rates on HELOCs than on most other types of credit.

Potential tax deduction. Most taxpayers can deduct the interest paid on a HELOC when they itemize deductions on their income tax return. This effectively lowers your borrowing costs even further. See your tax advisor for deductibility in your situation.

Flexibility. A HELOC is a revolving line of credit, much like a credit card. You can borrow any amount up to your credit limit. Then, as you pay it back, it becomes available to borrow again. You pay interest only on the outstanding balance.

Many uses

A HELOC can be used however you choose. Consider these ideas:

  • The big borrowing power makes a HELOC ideal for costly projects such as a home renovation, remodeling or addition.
  • The low interest rate and potential tax deductibility make a HELOC a great choice for consolidating high-interest debt. You’ll have one simple monthly payment with a lower interest rate.
  • Since it’s a revolving line of credit, it’s a smart choice for college tuition bills that are due every semester. You keep borrowing costs down since you only pay interest on the amount you’ve borrowed currently.
  • Use a HELOC to finance a wedding, dream vacation or other major expense.

Because a HELOC is secured by your home’s value, you’ll want to keep your borrowing amount in check. Inability to repay could result in losing your home.

Save even more

Right now, you can get a HELOC from PeoplesBank with one of the lowest rates on the market. Click here for more details!


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