Using Your HELOC as a Checking Account: Benefits, Risks, and FAQs
May 7, 2023
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If you're looking for ways to optimize your finances, using a home equity line of credit (HELOC) as a checking account may be a smart move. Not only can it provide you with easy access to your funds, but it can also help you save on interest payments and potentially earn more interest on your money.
In this article, we'll discuss the benefits of using a HELOC as a checking account and provide you with some tips on how to make the most of this financial tool.
Benefits of using a HELOC as a checking account
1. Lower interest rates
HELOCs typically have lower interest rates than traditional checking accounts. This means that you can potentially save money on interest payments and pay off your debt faster.
2. Higher interest earnings
On the flip side, since HELOCs usually come with variable interest rates, the interest you earn on your account can fluctuate. However, the average interest rate on a HELOC tends to be higher than what you would earn in a traditional checking account.
3. Flexibility
With a HELOC, you have the flexibility to use the funds as you see fit. You can use it to pay bills, make purchases, or even invest in other opportunities. Plus, you only pay interest on the amount you borrow, not on the entire line of credit.
4. Convenience
Using a HELOC as a checking account can be incredibly convenient. You can link it to your debit card or write checks directly from your HELOC account. Additionally, many HELOCs come with online banking and mobile apps, allowing you to manage your account from anywhere.
Tips for using a HELOC as a checking account
- Monitor your spending
Just like with any other account, it's important to monitor your spending when using a HELOC as a checking account. While you have access to a line of credit, it's important to remember that you're still borrowing money that needs to be paid back.
- Make payments on time
To avoid late fees and potential damage to your credit score, it's essential to make payments on time. Set up automatic payments or reminders to ensure you don't miss a payment.
- Compare interest rates
While HELOCs tend to have lower interest rates than traditional checking accounts, it's still important to compare rates among different lenders. Look for a lender that offers competitive rates and favorable terms.
- Consider other factors
Before deciding to use a HELOC as a checking account, consider other factors like fees, penalties, and minimum balance requirements. Make sure you understand the terms and conditions of your HELOC and compare them to other options.
FAQs about HELOC as a checking account
What are the risks of using a HELOC as a checking account?
One of the main risks of using a HELOC as a checking account is that you are borrowing money that needs to be paid back, so you need to make sure you can make the payments on time to avoid late fees and damage to your credit score. Additionally, the interest rate on a HELOC may fluctuate, which can affect your payments and overall debt. Finally, there may be associated fees with using a HELOC as a checking account, such as transaction fees or annual maintenance fees, so it's important to understand these costs before committing to this financial tool.
How do I make payments on a HELOC used as a checking account?
Typically, you'll need to make payments on a HELOC used as a checking account just like you would with any other loan. Most lenders offer various payment options, such as automatic payments, online payments, or payments by mail.
Can I earn interest on a HELOC used as a checking account?
Yes, you can earn interest on a HELOC used as a checking account. However, the interest rate may fluctuate depending on market conditions, and you'll need to ensure you have sufficient funds to cover any interest charges.
Are there any fees associated with using a HELOC as a checking account?
It depends on the lender. Some lenders may charge fees for using a HELOC as a checking account, such as transaction fees, annual fees, or monthly maintenance fees. Be sure to check with your lender to understand any associated fees.
Ready to unlock the value in your home and make smart financial decisions? Get a quote from Hitch today and experience the benefits of our digital HELOC platform. Our streamlined process, personalized approach, and commitment to your financial health make us the ideal choice for your home equity needs. Don't wait, take control of your finances with Hitch!
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1. Qualified applicants may borrow up to 95% of their home’s value. This does not apply to investment properties.
2. HELOCs have a 10-year draw period. During the draw period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) the total of all accrued finance charges and other charges for the monthly billing cycle. During the draw period, the monthly minimum payments may not reduce the outstanding principal balance. During the repayment period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) 1/240th of the outstanding balance at the end of the draw period, plus all accrued finance charges and other fees, charges, and costs.The lender will calculate this amount by taking the outstanding Account Balance on the last day of the draw period and dividing it by 240 months and then adding any finance charge that accrues but remains unpaid during the monthly billing cycle plus any other fees, charges and costs to the fixed principal payment that is due. During the repayment period, the monthly minimum payments may not, to the extent permitted by law, fully repay the principal balance outstanding on the HELOC. At the end of the repayment period, the borrower must pay any remaining outstanding balance in one full payment.
3. The time it takes to get cash is measured from the time the Lending Partner receives all documents requested from the applicant and assumes the applicant’s stated income, property and title information provided in the loan application matches the requested documents and any supporting information. Most borrowers get their cash on average in 21 days. The time period calculation to get cash is based on the first 4 months of 2024 loan funding's, assumes the funds are wired, excludes weekends, and excludes the government-mandated disclosure waiting period. The amount of time it takes to get cash will vary depending on the applicant’s respective financial circumstances and the Lending Partner’s current volume of applications. Closing costs can vary from 3.0 - 5.0%. An appraisal may be required to be completed on the property in some instances.
4. Not all borrowers will meet the requirements necessary to qualify. Rates and terms are subject to change based on market conditions and borrower eligibility. This offer is subject to verification of borrower qualifications, property evaluations, income verification and credit approval. This is not a commitment to lend.
5. The content provided is presented for information purposes only. This is not a commitment to lend or extend credit. Information and/or dates are subject to change without notice. All loans are subject to credit approval. Other restrictions may apply.