5 ways to use a HELOC to fund a major purchase

Your home is a canvas of memories and a foundation for dreams. It could also be a powerful financial tool that helps you make those dreams a reality. 

A HELOC could offer a predictable, flexible way to borrow money that works for your budget and helps you build the future you want. We'll walk you through how a home equity loan could fund a major purchase that makes your life better. Let’s look at a few of the bigger ways to use a HELOC.

1. Home renovations

Make your home exactly what you’d like it to be. Enjoying that dream kitchen or deck is one of the best perks of homeownership. These are popular upgrade options for homeowners who use HELOCs to renovate:

• Install a new pool or hot tub

• Build an addition 

• Invest in a luxury kitchen or bath remodel

• Redo your landscaping and outdoor living areas

• Add extra spaces for hobbies like woodworking or fitness

A HELOC is a particularly good choice for home improvements. You borrow against your main asset (your home) to increase its value, and that could help you grow your net worth. Many home improvement projects require payment in phases. With a HELOC, you could borrow money as you need it. 

After 2025, you might get a tax deduction for the interest you pay on your home equity loan. Check with a qualified tax professional for guidance about your specific situation.

2. Energy-efficient upgrades

Now is a great time to boost your home’s energy efficiency, thanks to newly available tax incentives that lower the cost for homeowners even more. Here are some of the projects that may qualify:

• Add solar panels

• Install an electric vehicle charging station

• Boost your home’s insulation and weatherproofing

• Replace old appliances with ENERGY STAR -rated versions

• Invest in a heat pump HVAC system, clothes dryer, and/or water heater

Consider having a home energy audit for these upgrades. A trained professional will visit your home and identify the best uses of your time and money for the many possible projects out there. A HELOC could give you the flexibility to get these done on a home renovation schedule that works for you. 

Making energy-efficient upgrades now means you can start saving money on your energy bills right away. Check with your tax advisor, because you may be able to deduct the interest you pay on a HELOC from your taxes, in addition to qualifying for the extra tax incentives for these purchases.

3. Consolidate high-interest debt

You could also use a HELOC to fund big purchases you’ve made in the past by using the cash to pay off or consolidate existing debt, especially those with higher interest rates. This is another popular way that homeowners use HELOCs. In 2022, one out of every four HELOC borrowers used their HELOC to consolidate debt. 

A HELOC is a type of secured debt. It’s guaranteed by your home, and that allows your lender to offer you lower interest rates compared to other forms of borrowing. 

Also, you can choose the repayment term that works for your budget. If you opt for a 20-year HELOC, your payments will be lower compared to a 10-year HELOC for the same amount. 

It’s possible to get a monthly payment that's less than your current monthly minimums on your debts. You can keep those smaller payments, or—if you choose—you can pay extra so that your debt balance also goes down. You could make quick progress in paying off your debt in this way. 

4. Cash cushion for the unexpected

For the first few years after you get your HELOC, you can borrow as often as you wish, as long as you have available credit. This makes it a perfect backup for big emergency expenses. 

It’s great to save up an emergency fund if you can. But in the meantime, many homeowners find that a HELOC offers a welcome sense of security. You’ll be able to sleep easier at night knowing you’ll be able to pay for any emergencies that come up, such as: 

• Car repairs

• Medical bills

• Veterinary emergencies

• Unexpected home repairs

• Last-minute travel to visit sick relatives

5. ___________ (You fill in the blank)

The beauty of a HELOC is that you could use it for just about anything you want. Lenders generally don’t place any major restrictions on how you use the money you borrow. 

Many people have gotten a lot of benefit by using their HELOC to pay for all kinds of big expenses, including:

• Take a personal sabbatical 

• Pay for your wedding and honeymoon

• Build a granny flat

• Pay for elective medical procedures, like LASIK and cosmetic surgery

The possibilities are wide open.

What’s next

• Check your budget to see what an affordable payment might look like for your family.

• Calculate the amount of equity you have in your home to see how much you can borrow.

• Talk to a mortgage advisor about getting prequalified.