What Can You Use a Home Equity Line of Credit For?

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People who own their home or most of it may have more than $100,000 in credit at their disposal through a home equity line of credit (HELOC). Just because you borrow money against your home does not mean you have to use it for home-related costs, such as repairs. You can use a HELOC for basically anything.

Identification

Usually, lenders have very few restrictions on what you can use a HELOC for, because it is basically like using your home as a credit card. Some of the most common uses for a HELOC are buying big-ticket items like a new TV, paying for a child's college education, home improvements and even purchasing other properties.

Smart Use

HELOCs can save you money on other loans by consolidating higher-priced debt into the HELOC. Most HELOCs have an interest rate of 4 to 6 percent--far lower than almost any credit card or other consumer loan. You could also use a HELOC as an emergency set of funds, such as in case you have a sudden, expensive injury. The self-employed might benefit from a HELOC during periods where they cannot find clients and need to pay for the essentials.

Considerations

Borrowers should avoid using a HELOC for day-to-day purchases. HELOC interest rates can change in a day, whereas a normal adjustable rate mortgage often has an interest fixed for the first 10 years. Also, you put your home at risk when using HELOC funds. Lenders can foreclosure on your home if you default on your repayment.

Tip

The Motley Fool's Elizabeth Brokamp, in her article "Home Equity 101," suggests using a HELOC when you feel disciplined enough to use the funds for a planned expense or emergency and can risk your home. Be prepared to make regular payments on the HELOC. A HELOC usually has an "expiration date"--a date when you must pay the balance in full. You may be able to use the interest on the HELOC as a tax deduction, but usually only when the money goes to repairs and sometimes to rental properties.