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

Yahoo

3 days ago

Benzinga and Yahoo Finance LLC may earn commission or revenue on some items through the links below.
A home equity line of credit — or HELOC — is one of the most flexible tools homeowners have to tap into the value of their property.
Unlike a traditional loan, a HELOC works more like a credit card: you're approved for a certain amount, draw from it as needed, repay it, and can borrow again. It's revolving credit, secured by your home, and you can typically borrow up to 80% of your home's value (minus what you still owe on your mortgage).
That makes a HELOC incredibly useful — but also risky. Because your house is on the line, it's not the kind of financial product you want to use lightly. While you can technically use a HELOC for anything, financial experts agree: the smartest uses are the ones that preserve or grow your long-term financial position.
Don't Miss:
.
.
When a HELOC Makes Sense
Let's take a look at the top reasons homeowners turn to HELOCs — and why, in the right circumstances, these can be strategic financial moves. A HELOC isn't just about unlocking equity for convenience; it's about using that equity to strengthen your long-term position. Whether you're renovating to boost your home's value, consolidating expensive debt, or investing in your future, the key is to treat your HELOC as a financial tool — not a windfall. When used thoughtfully, it can offer lower interest rates than credit cards or personal loans, plus the flexibility to borrow only what you need, when you need it. But make no mistake: because your home secures the loan, the stakes are high. The smartest uses are the ones that build equity, reduce risk, or increase your financial resilience.
Pay for Home Repairs and Improvements
Using a HELOC to finance home improvements is one of the most common — and most financially sound — strategies. Renovating your home can increase its market value, which in turn boosts your equity, giving you more financial cushion in the long term. Projects like kitchen remodels, bathroom additions, roofing repairs, and energy-efficient upgrades often deliver strong returns, especially if you plan to sell or refinance in the future. Plus, in many cases, the interest paid on a HELOC used for home improvements may be tax deductible (though you'll want to confirm with a tax professional). Just be selective: improvements should be strategic, not cosmetic indulgences. A HELOC used to upgrade a kitchen or add livable space can pay for itself over time — unlike granite countertops that don't add real value.
Use as an Emergency Fund
A HELOC can act as a financial safety net — especially if you don't want to keep a large chunk of cash tied up in a low-interest savings account. Having a HELOC available means you can cover surprise expenses like a medical emergency, car repair, or temporary job loss without turning to high-interest credit cards. It's not a substitute for regular savings, but it can serve as a backup reserve for those unexpected moments that strain your budget. Ideally, you'd draw from it sparingly and repay quickly, keeping the line open for true emergencies. If you're self-employed or work in a seasonal industry, this can provide added peace of mind — just remember that borrowed money still comes with a cost.
Pay Off or Consolidate Debt
If you're juggling multiple high-interest debts — like credit cards or personal loans — a HELOC can offer a simpler, cheaper way to manage what you owe. HELOCs typically carry much lower interest rates than unsecured debt, which means more of your payments go toward reducing the principal. You can pay off multiple balances, streamline to a single monthly payment, and potentially save thousands in interest. But be careful: you're converting unsecured debt into secured debt backed by your home. If you fall behind on payments, foreclosure is on the table. This strategy only works if you commit to financial discipline — that means no new credit card spending and a clear payoff plan.
Covering Medical or Education Expenses
Major life expenses like medical bills or college tuition can wipe out savings and derail your financial goals. If you or a family member is facing high out-of-pocket medical costs or pursuing higher education, a HELOC can provide short-term liquidity to cover those costs without relying on high-interest borrowing. Unlike student loans, HELOCs don't come with usage restrictions, and you have more control over repayment terms. Still, this isn't a blanket endorsement — the money should go toward life-changing expenses that truly move the needle for your family's well-being or earning potential. Used responsibly, a HELOC can buy you time and flexibility when other options are limited.
Making a Down Payment on a Second Home
If you're looking to buy a second home — whether it's a vacation property or a rental investment — coming up with a large down payment can be a barrier. A HELOC on your primary residence can unlock the funds you need to move quickly on a new opportunity without selling assets or draining cash reserves. It's a strategy often used by commission-based earners or people expecting future income. Sarah DeFlorio, VP of Mortgage Banking at William Raveis, notes that "individuals with variable income often benefit from the repayment flexibility a HELOC offers — using future bonuses or commission to pay down the balance." Just be sure the second property has a strong long-term financial upside, and that you're not stretching your finances too thin with two mortgages.
Investing in Rentals or Starting a Business
A HELOC can also be used to jump-start larger wealth-building strategies — like buying rental properties or starting a business. It gives you fast access to capital without jumping through the hoops of commercial lending. Real estate investor Tim Gordon used a HELOC to fund renovations on his rentals, boosting rental income and long-term appreciation. "The returns from the upgrades far outweighed the cost of borrowing," he says. Still, this approach isn't for everyone. If the investment fails, your home is still on the line. So avoid speculative bets, and focus on ventures where you can realistically forecast returns and manage risk. Used wisely, a HELOC can help you take calculated, high-upside steps — but it should never be your first or only plan for funding a business.
Trending Now:
Warren Buffett once said, "If you don't find a way to make money while you sleep, you will work until you die." Here's how you can earn passive income with just $100.
$100k in assets? Maximize saving for your retirement and cut down on taxes: .
When You Shouldn't Use a HELOC
For all its flexibility, a HELOC isn't a free pass to spend — it's a loan backed by your house, and misusing it can have serious consequences. If you take on more debt than you can handle or use the funds for short-term indulgences, you're putting your most valuable asset at risk. Many borrowers get into trouble not because the HELOC was inherently bad, but because they treated it like a slush fund instead of a strategic tool. The moment you draw on your HELOC, you're committing to monthly payments that can fluctuate with interest rates. If your income isn't steady, or if you're already stretching your budget, that variability can create financial strain quickly. Knowing when not to use a HELOC is just as important as knowing when it makes sense — because at the end of the day, your home should be your safety net, not collateral for poor planning.
If Your Home Is Your Only Major Asset
Borrowing against your home when it's your only major asset should raise red flags. A HELOC puts your house on the line, and if you default, you could lose the roof over your head. That's a huge risk to take, especially if you don't have other assets or savings to fall back on. Think of it this way: if everything went sideways — job loss, health crisis, market downturn — could you still make your HELOC payments? If the answer is no, then you're essentially risking everything you own for short-term cash flow. In that case, it may be smarter to explore unsecured financing, delay the expense, or build savings through other means.
If You're Spending on Non-Essentials
Tempting as it may be to use a HELOC to fund a luxury vacation, a new car, or designer furniture, this kind of spending rarely ends well. Using home equity for lifestyle upgrades — the kind that don't hold or grow value — can quickly spiral into long-term debt. The trip may be over in two weeks, but the payments will last much longer. Worse, you're putting your home at risk for something that doesn't generate any financial return. If you wouldn't take out a second mortgage to pay for it, don't use a HELOC either. Save the equity for things that increase your wealth, your security, or your earning potential.
If You Can't Afford the Payments (Now or Later)
Even if you qualify for a large line of credit, that doesn't mean you should use it. HELOC payments can vary — especially when interest rates rise — and if your monthly budget is already tight, you could quickly find yourself in over your head. Many homeowners underestimate how quickly payments can increase when rates go up or when they borrow more than planned. If you're unsure whether your income can handle an extra bill — especially a fluctuating one — think twice. Stretching your finances just to access equity is a risky move that can backfire hard.
If There's a Better, Cheaper Option
HELOCs are often cheaper than credit cards, but that doesn't make them the best option in every case. Personal loans, mortgage refinances, or even 0% APR credit card promotions might offer better terms depending on your needs, credit score, and repayment timeline. Refinancing your mortgage, for instance, could lock you into a lower interest rate over a longer term — though with higher closing costs. A personal loan doesn't require collateral and may offer faster funding. Do the math. If a HELOC isn't clearly the most cost-effective way to borrow, don't default to it just because it's available.
If Your Income Isn't Steady
HELOCs require consistent repayment. If your income fluctuates — because you freelance, run your own business, or work in a seasonal field — that variability can make repayment risky. Even if you're doing well financially right now, a dry spell or unexpected expense could throw your whole repayment plan off course. Without a financial cushion or reliable backup plan, even a small dip in income could lead to missed payments, penalties, or worse — foreclosure. In these cases, it's smarter to lean on liquid savings or build an emergency fund than to tie your financial stability to borrowed equity.
See Next:
.
.
This article What Can You Actually Use a Home Equity Line of Credit For? originally appeared on Benzinga.com