When should you get a HELOC?

For millions of Americans stung by persistent inflation and stock market uncertainty, it can be difficult to determine the best way to make ends meet. Personal loans and credit cards can certainly help but those forms of credit typically come with high interest rates. Refinancing, meanwhile, can help lower monthly costs but it won’t provide the sort of lump sum many people currently need.

Fortunately, for homeowners with equity in their homes, there are two cost-effective and valuable options to explore: home equity loans and home equity lines of credit (HELOCs). Both allow homeowners to use the equity they’ve built up in their home as cash to fund major projects and home repairs or simply to help pay the bills during emergencies.

That said, as with all financial products and services, timing is key. In order to get the most out of a HELOC you’ll want to take it out at a certain time. So when should you get a HELOC? That’s what we will explore below.

If you think you could benefit from taking out a HELOC then start exploring your options here now or use the table below to check your eligibility.

When should you get a HELOC?

Every homeowner’s personal financial situation and preferences are different. That said if they’re looking for a way to pay for major expenses a HELOC can help. Here are three times when homeowners should get a HELOC.

When home values are high

While interest rate hikes have hurt prospective homebuyers – and decreased the appeal of a refinance – it’s had mixed results on home values. Some home values in the country are still high while others have seen significant drops. If you find yourself living in one of the former areas of the country, then now is a good time to take out a HELOC.

The more your home is worth the more you can potentially use for a HELOC. And if home prices have risen in your neighborhood you’ll be able to a higher line of credit than you would have just a few short years ago. Remember: You’re deducting from what your home is perceived to be valued at – not the amount you’ve already paid. So if you’ve only paid 15% to 20% of your initial home mortgage – but the value of the home has since risen – you’ll be able to get that difference in a HELOC (assuming all other eligibility considerations are met).

You can easily check your HELOC eligibility here now or explore your options in the below table.

When it will be used for household repairs

One of the best things about a HELOC is its interest deduction come tax season. If you know you need money to make major household repairs or renovations and are unsure about how to fund it strongly consider using a HELOC. That’s because, unlike other credit options, you’ll be able to account for the interest paid when filing your annual tax return.

“Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan,” the IRS says. “The loan must be secured by the taxpayer’s main home or second home (qualified residence), and meet other requirements.”

When you’ve been living in the home 

If you’ve been in your home for years – if not decades – then chances are you’ve already made a sizeable dent in your initial mortgage loan. That means you’re sitting on tens of thousands of dollars (potentially more) that you can use as you see fit. 

That doesn’t mean you should be reckless with how you use a HELOC. But it does mean that your best way of funding major expenses or emergencies may be by using the equity you’ve painstakingly built up in your home. The longer you’ve been in the home the more you probably have to access. Considering that many lenders will allow you to take out up to 80% of your equity, there may be a substantial amount of money you can access now.

See how much of a HELOC you can get by crunching the numbers online now.

The bottom line

During times of economic uncertainty, it can be tempting to grab any form of credit available. Homeowners should pause, however, and realize that one of their best resources is their home. A home equity line of credit can help with expenses that otherwise may have been paid with high interest forms of credit. A HELOC is especially valuable to take out when home values are high or when the homeowner needs funding to make major home repairs. It’s also generally advantageous to use when the homeowner has been in the home for an extended period of time and thus has a substantial amount of equity to utilize.