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5 Tips for Savvy Use of Your Home Equity Line of Credit
Tapping your home's equity to pay college expenses,
consolidate credit card debt or even to buy a new car or boat is
common place. Many economists attribute the additional buying
power afforded consumers through home equity debt as a primary
reason the nation's economy has been able to emerge from the
recent recession. Yet, aside from simply allowing consumers to
spendmore, the flexibility and efficiency of a home equity line
of credit (HELOC) can provide the financially savvy person with
the means to savemoney, make money or simply take advantageof
opportune situations he or she might otherwise miss out on. Here
are five tips to show you how:
Tip 1: Take Advantage of Higher Insurance Deductibles! You
probably know that raising deductibles on auto and homeowners
insurance policies can mean big savings on insurance premiums. If
you increase the deductible on a homeowner's policy from $500 to
$1,000, you'll cut your premium by as much as 25%! Yet many
people don't do this because they fear they may not have the
necessary cash available in the event of a loss. With
low-interest cash readily available through a home equity line of
credit you'll have the security and confidence you need to raise
your deductibles and reap the savings!
Tip 2: Lock In Big Savings! Credit card companies (e.g. the GM
card) frequently have shopping programs with names like "Main
Street Savings" on a 30-day free trial basis. These programs
allow you to buy discounted gift cards (20% discount) for major
national retailers like Target, Sears, and Home Depot. The
flexibility afforded by a home equity line of credit can allow
you to purchase (during the free trial period) a large amount of
discounted gift cards for major retailers you frequent. Then use
these cards instead of cash or credit when you purchase everyday
items (The cash you would have spent can be used to pay down the
HELOC).
Although you pay low interest on the home equity credit line,
you receive a front-end discount of 20% on everything bought.
When combined with store coupons and sales, you can realize total
savings of 70% or more! In short, a HELOC provides the low
interest cash availability to take advantage of bargains like
this that you might otherwise have to pass on.
Tip 3: Take Advantage of 0% Balance Transfer Offers! We've all
seen no-fee credit card offering "0% APR" on balance transfers
for 6, 12, and even 18 months. If you have a balance on your
HELOC, you may be able to take advantage of these offers. Here's
an example of how: last year I accepted such an offer and
promptly transferred $10,000 from my home equity credit line
balance (which had a 4.25% rate). Then I cut up the card! For the
next eleven months, I paid the monthly minimum credit card
payment (3% of the outstanding balance) by writing a check from
my home equity line of credit. In the twelfth month, prior to the
expiration of the 0% offer, I paid off the remaining balance with
another home equity credit line check. During the 12 months, I
also made sure to continue my regular payment towards the HELOC
at the same level, meaning that more of each went to pay down
principal and less went to interest.
Net result: interest savings of over $350.00, lower principal
balance on my HELOC, and a positive addition to my credit
repayment history!
Tip 4: First Pay With a Rewards Credit Card! If you're
contemplating using your HELOC for a major purchase, you should
consider whether or not the merchant your dealing with accepts
credit cards. Why? Because it makes a great deal of sense to pay
first with a rewards credit card and then pay off the card with
your HELOC check. On a recent $14,000 bathroom remodel, I was
able to charge plumbing services, cabinets, and almost everything
else to my Fidelity/MBNA 529 College Rewards Mastercard. This
card pays you back by putting 2% of everything charged into a 529
college savings plan. Result: $280.00 in college savings that
would have been missed if I paid the bills directly with home
equity credit line checks! Whatever rewards credit card you
favor, it's sensible to pay first with the card whenever
possible. Keep in mind, though, you must promptly pay off the
balance and not incur finance charges.
Tip 5: Replace Your 1st Mortgage with a HELOC! According to
Money Magazine, if you have more equity than debt and plan to
stay in your home for 3 years or less, you should consider
replacing your first mortgage with a home equity line of credit.
HELOCs are currently available around the country at rates of 4%
or lower. Even if rates increase a full percentage point each
year, they'll still be low when you pay off the loan. Best of
all, there are no closing costs with most HELOCS so you won't
have to worry about recouping them through interest savings as
you do with a traditional mortgage refinance. A savvy person -
using tip 3 in conjunction with tip 5 - might even move a portion
of his mortgage to a 0% credit card thanks to the flexibility of
a home equity line of credit.
About The Author
Tim Paul has more than 25 years executive financial management
experience. His recent area of focus has been to develop and
catalog proven strategies for financially savvy persons to get
the most from their home equity credit lines. His website is
www.sagetips.com.
mail@sagetips.com
 MORE RESOURCES updated Thu. February / 09 / 2012
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Refinancing your debt via a home equity loan shifts your
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that your home is on the line.
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