When Isn't An Equity Line of Credit a Good Idea?
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When Isn't An Equity Line of Credit a Good Idea?

If you've been a homeowner for a while, you've probably heard about the benefits of a home equity line of credit. For instance, it's a flexible type of loan, you can control how much you take out, and you've got a long time to pay it back. You may have also heard that the interest rate on a HELOC (home equity line of credit) is often much lower than the interest rate on a credit card. Another great option is a Figure Home Equity Line, which is a HELOC but is a fixed-rate loan1: you get all the money up front and then pay the loan and principal back in fixed monthly installments, just like a regular amortizing mortgage. Once you’ve paid off a portion of the principal you are able to make additional draws. These will also be fixed-rate loans, but the rate will be set at the time of the additional draws.

It is important to know that there are some types of expenses that are not appropriate for a HELOC. Below are a few expenses that are potentially not appropriate for a HELOC.


Vacations can get pricey, especially if you have high expectations for your next family trip. It may be tempting to use a HELOC to pay for your dream vacation, but this can be very risky. You’ll be paying off the principle and the interest of your HELOC for a long time. The benefits of your vacation will be short-term. It’s best to plan a vacation that’s affordable for you or postpone your trip until you can save the money.

Some Credit Card Debt Consolidation

It can be a great idea to use a HELOC to pay down high-interest credit card debt. Many homeowners use their HELOC to consolidate their credit card debt because you can turn multiple monthly payments into a single, lower-interest payment, saving you hassle along with a lot of money.

This option can become risky if the behaviors behind that debt aren’t addressed. If the debt was something like a one-off investment, or a non-recurring medical bill, then a refinance can be a great way to save money. If it was caused by unsustainable consumer spending (see Vacations, above), then this behavior need to be resolved at the time of refinance, or you could find yourself facing much bigger problems in the future. Keep in mind that credit card debt is unsecured, which means that there's no associated property that could be lost if you default. A HELOC is secured debt, meaning that your house has been put up as collateral. Failure to repay your HELOC could result in foreclosure.

Starting a New Business

New businesses can be risky propositions. Many of them, unfortunately, fail in their first year. Imagine starting a business by tapping into the equity of your house. What would happen if that business failed? You'd no longer have a salary, and you would still have to make payments on the HELOC.

This isn’t to say, however, that investing in a business with a HELOC is always a bad idea. If you have enough information to be confident that expanding an existing business will provide a high return on the investment, using a Figure HELOC can be a great way to get the funding you need quickly. If you know that you have other ways to help pay off your HELOC if the investment in your business takes a while to bear fruit, it can still be a great idea. Again, you want to make sure that you are using your HELOC in ways that provide a high ROI.

Another option here is a business loan, which are designed to be less risky for business owners.

Buying a Vehicle

All vehicles are depreciating possessions: once you drive them off the lot, they start to lose value. That’s not a good return on your investment. It would be better to keep your current car and save up to pay for a new one versus using your home to pay for it.

That being said, there can be good reasons to use a HELOC can have benefits. For example, if it’s the only way you have to get to-and-from school and work, then the investment may be a good one. Furthering your education can increase your earning ability.

So When Should You Get a HELOC?

The general rule is this: your home is an investment, so you want to use the equity in that home for other investments, which is where you spend money with the expectation of a return. Refinancing credit card debt can be a great way to save money, depending on the cause of the underlying debt. Investing in your home, education, or business (in certain cases) are other solid options. Here are a few examples:

Remodeling or repairing your home

This is an excellent way to raise your property value, which makes paying off the loan easier if you sell your house. If the HELOC is used to remodel your home, the interest paid is potentially tax-deductible. Also, if you're unable to afford a critical repair, like a roof replacement, a HELOC is an excellent way to protect your investment. Repairs can also be tax-deductible.

Funding your education

Another good use of a HELOC is to invest in your education. Every additional level of education you complete can increase your earning potential, according to data from the Bureau of Labor Statistics. This is a great return on your investment in yourself and your career.

Paying off high-interest credit card or personal loan debt

Another way to use a HELOC is to pay off high-interest credit card or personal loan debt. With a home equity line of credit, you can get a better rate and pay off your debt a lot faster.

Now that you’re armed with the above information, there’s one other thing you should know: Figure’s HELOC has a fast, simple approval process. If you're approved, you could get funding in as little as 5 days2. With a fixed rate, our HELOCs are unique and well suited for homeowners who seek a predictable, stable payment structure. For more information about our loans and loan application process, check out our website.

1The Figure Home Equity Line is an open-end product where the full loan amount (minus the origination fee) will be 100% drawn at the time of origination. The initial amount funded at origination will be based on a fixed rate; however, this product contains an additional draw feature. As the borrower repays the balance on the line, the borrower may make additional draws during the draw period. If the borrower elects to make an additional draw, the interest rate for that draw will be set as of the date of the draw and will be based on an Index, which is the Prime Rate published in the Wall Street Journal for the calendar month preceding the date of the additional draw, plus a fixed margin. Accordingly, the fixed rate for any additional draw may be higher than the fixed rate for the initial draw.

**Five business day funding timeline assumes closing the loan with our remote online notary. Funding timelines may be longer for loans secured by properties located in counties that do not permit recording of e-signatures or that otherwise require an in-person closing.

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