Should you use a HELOC in a financial emergency?
As a homeowner, you likely have a lot more equity in your house than you did just a few years ago.
U.S. homeowners gained almost $3 trillion in equity in the fourth quarter of 2024 compared to the previous year, according to data from the Federal Reserve Bank of St. Louis.
While your home equity shouldn’t be the first place you go to cover a cash shortfall, a home equity line of credit (HELOC) can be a useful resource in a short-term financial crisis.
How to know if a HELOC is the best move for your emergency
Before applying for a HELOC, consider whether it makes the most sense for your financial situation. HELOCs and other home equity products use your home as collateral, meaning you could lose it to foreclosure if you can’t keep up with your monthly payments.
If your emergency poses a long-term threat to your financial stability, a HELOC may be more risk than reward. However, if there’s a clear end in sight and you just need to get over an expensive hill, a HELOC could be the right move.
For example, you could be planning a leave of absence from work for medical reasons but know that you’ll return within a few weeks or months. Even with emergency savings and insurance, you could find yourself in a “short-term cash crunch,” says Thomas Carson McLean, certified financial planner and founder of Altruist Wealth Management in Charlotte, NC. In this case, a HELOC could act as a financial bridge until you’re back to work.