Even in today’s economic climate, homeownership still offers distinct advantages over renting.
For homeowners who have significant equity in their property, they have access to a powerful financial planning tool that can help them survive more serious financial crises and emergencies: the home equity line of credit (HELOC).
HELOCs are easy to set up and many homeowners with strong qualifications can sometimes get one for free from their local banks.
Unlike a home equity loan, however, you won’t have to make any payments with the home equity credit line — unless you use it.
That’s where it’s financial planning prowess comes to life. If you ever need to use it for a major emergency, you can just draw against it and have your cash within a day or two:
- Cheaper than credit cards. You may have credit cards for small emergencies, but revolving debts charge much higher interest rates.
- Tax deductible interest. Just as with home equity loans, the interest charges on HELOCs may be tax deductible.
- Faster than large loans. You could also apply for a refinance or loan against your 401K or other assets, but that will take time — and often incur more costs.
- Flexible draw. Instead of one lump sum, the HELOC gives you a credit line against which you can draw multiple times. So whether you need money to overhaul your car, rent a beach house for a month or invest in a special property, you can have ready access to cash when you need it.
So if you’re in the financial planning mode this weekend, don’t forget to consider your property and the home equity credit line. If you have built up significant equity in your property, check with your local banker about a no-cost home equity line of credit and add another contingency resource to your long-term financial plans.
