People are borrowing from their homes’ equity the way they used to — and that’s a good thing.
A HELOC is a second mortgage that lets you keep your current home loan. You can borrow from a HELOC and repay some or all of it monthly, like a credit card. HELOCs are traditionally used to pay for home improvements, allowing the owner to increase the home’s value by borrowing against its equity.
What about in-between outlays that aren’t as transient as a vacation or as substantial as a renovated bathroom? College expenses, for example, or to consolidate credit card debt? Financial planners don’t like to say “never,” because everyone’s situation is unique, but they’re not enthusiastic about those uses.
“Borrowing against home equity can have several downsides,” Marcus P. Miller, a certified financial planner at Mainstay Capital in Jacksonville, Florida, said in an email. “First, it increases the amount of debt that you have, which can put you at risk of defaulting on your loan or facing financial difficulties if you are unable to make your payments. Second, it can reduce your home equity, which is the amount of your home that you own outright.
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