What can you use a HELOC for?

This article is for educational purposes only. JPMorgan Chase Bank, N.A., does not currently offer home equity lines of credit (HELOCs) in all states. Please talk with a Home Lending Advisor to see if HELOCs are available in your state. Any information described in this article may vary by lender.

Quick insights

• A home equity line of credit (HELOC) can be used to finance home renovations, consolidate high-interest debts, cover educational expenses and fund investment opportunities.
• One of the main limitations when using a HELOC will be its credit limit, which depends on the lender and amount of equity in your home.
• HELOCs often have variable interest rates, which can fluctuate, making it harder to predict future payments.

Whether you're looking to upgrade your living space, consolidate debt or seize an investment opportunity, a home equity line of credit (HELOC) may help turn your goals into reality. This article will cover several ways to use a HELOC, along with some important aspects to consider.

Several ways to use a HELOC

A HELOC can offer homeowners a flexible source of money that you repay with variable interest. Here are examples of how a HELOC can be used:

Home renovations

Improve or expand your living space to increase your home's value. For instance, if you use a HELOC to renovate a kitchen or add a new deck, you could increase your home's resale potential. Plus, given the length of the draw period, you may be able to fund several long-term projects with a HELOC.

Debt consolidation

Paying off credit card balances with a HELOC could streamline multiple high-interest debts into one more manageable payment. Compared to credit cards, HELOCs generally have lower interest rates, so you could save on interest, not just simplify payments. Debt consolidation can have its benefits — doing so with a HELOC is another example of its potential usefulness.

Education expenses

A HELOC can help pay for tuition or other educational needs. You can draw from a HELOC up to your limit during the draw period, which may create an alternative to student loans. Perhaps you want to cover a child's college tuition or your own professional development courses.

Emergency funds

When unexpected expenses arise, such as urgent home repairs, an open HELOC may provide an answer. For example, drawing from a HELOC to cover a major car repair or an unexpected emergency could avoid taking on new debt with less favorable terms.

Investment opportunities

A HELOC can be used to fund investments, potentially offering higher returns than the cost of borrowing. You could use a HELOC to purchase a rental property or invest in the stock market, for example. However, investment opportunities generally carry different levels of risk.

The versatility of a HELOC

Key aspects of a HELOC that make it a flexible financial product include:

• How you borrow: Accessing a HELOC is similar to using a credit card. You can draw from the credit line, repay and borrow again during the draw period. That can last 3-10 years or more, depending on the lender.
• Variable interest: Having a variable interest rate on a HELOC means it can change over time with the market, and with it, monthly payments.
• Usage: You can use a HELOC for various purposes, as described above. Debt consolidation, home renovations and emergency funds are among the different ways to use a HELOC. This versatility can be beneficial depending on your situation and needs.

Understanding the limitations of a HELOC

A HELOC offers flexibility but comes with several important limitations. Variable interest rates and long repayment periods can make payments difficult to manage in certain situations. Taking on more debt with a HELOC could even be risky sometimes — if you have an unstable income, are nearing retirement or already have a high debt-to-income ratio, for example.

Is there anything you can't use a HELOC for?

Besides how you draw from your HELOC, the main limit on your usage is the available credit. As a form of revolving credit, borrowers can use a HELOC in many different ways. However, a HELOC may not be an ideal debt to take on in certain situations. It typically involves variable monthly payments and long repayment periods. Therefore, HELOCs are generally better for long-term financing, not short-term financial needs.

In summary

While a HELOC can be beneficial, having a solid repayment plan can avoid financial strain. Before applying for a HELOC, consider important factors like loan terms, your credit score and your home equity. A strong score can help secure better terms, while the actual limit of a HELOC will be based on your current equity.

Effective financial discipline is key to avoid accumulating more debt than you can handle. You may want to consult with a financial advisor or Home Lending Advisor to help you make a decision that is right for your situation.