Home equity is the difference between the market value of your home and what you owe on your mortgage. If you have sufficient equity, you can borrow a percentage of it with a home equity line of credit (HELOC).
A HELOC is a second mortgage but functions a lot like a credit card. It allows you to borrow what you need, as you need it, until you reach your credit limit. The maximum amount you can borrow depends on the value of your home and how much you still owe on your mortgage.
HELOCs have two phases: the draw period and the repayment period. During the draw period, you can borrow money from your line of credit. As you make payments, the full amount is available to you again. The repayment period is when you can no longer borrow money from the credit line, and you make monthly payments back to your principal.
Some home equity lines of credit have adjustable rates. The amount your interest rate changes depends on the lender, so be sure to ask at loan closing to see if and when the rate will change.
One of the most common reasons homeowners take out a HELOC is for home renovations or remodeling projects. Adding square footage or updating your kitchen or bathroom is a great way to increase the value of your home and get the most from your home’s equity.
If you want to further your education or training, or you have kids heading off to college, a home equity line of credit can help you pay for tuition or pay off student loans. Make sure to compare HELOC rates to student loan rates to find the best option for you.
If the interest rate on your HELOC is lower than your other loans, it may be wise to use it to consolidate high-interest debts. Paying off credit card debt can be a great use of a HELOC. With this option, it’s important to make sure you don’t rack up high-interest debt again.
Your home’s equity can help you with life’s unexpected events. Whether you have an overload of medical bills, or experience a sudden job loss, a HELOC is a quick way to get the money you need.
Deciding whether to get a HELOC or not depends on your financial situation and personal goals. Typically, you’ll need to meet the following requirements to qualify:
If you’re interested in getting a HELOC or need some more info, we’d love to help. Contact us to schedule an appointment!