There are a variety of ways to borrow money, ranging from credit cards to personal loans, but many consumers often overlook the opportunity afforded by what is likely their largest asset: their house. A Home Equity Line of Credit (HELOC) is a type of loan that allows you to borrow against the equity you've built up in your home. Equity is the difference between the market value of your home and the outstanding balance on your mortgage. Below, we explain how you can unlock the power of your home with a HELOC
How Does a HELOC Work?
Unlike a traditional loan where you receive a lump sum up front, a HELOC operates more like a credit card, but with a much lower interest rate. Once approved for a HELOC, you'll be given access to a line of credit with a predetermined limit. You can then borrow from this line of credit as needed, up to the limit, using special checks or by transferring the funds to your checking account.
The minimum payments you must make each month cover the interest for the actual amount you’ve borrowed, not the entire credit line. For example, if you have a 10-year HELOC of $10,000 with an interest rate of 7.000%, and have accessed $1,000, your monthly payment is only $11.61.
How Can a HELOC Be Used?
One of the benefits of a HELOC lies in its versatility. You can use the funds for a variety of purposes, such as:
- Home renovations: A HELOC can help cover the costs of your home improvement projects and updates.
- Debt consolidation: Using lower-interest HELOC funds to pay down high-interest debts, like credit card balances or personal loans, can save you money on interest payments.
- Education expenses: HELOCs can be used to fund higher education expenses, such as tuition fees, books, and supplies.
- Emergency funds: Having a HELOC in place can provide you with a financial safety net in case of unexpected expenses, such as medical bills or major car repairs.
- Investments: You can use the money from a HELOC to invest in real estate or the stock market, with the potential to earn a higher return than the interest rate on the HELOC.
What Are the Benefits of a HELOC?
As mentioned above, one of the biggest perks of a HELOC is the flexibility it provides. It ensures you have access to funds when you need them, so you can tackle various financial needs as they arise.
Our HELOC product also offers an option to advance funds from the line and convert it to a fixed rate and term. It’ll be a fixed payment for the term you choose. As you pay back the fixed rate advance, the principle portion is replenished back to your HELOC limit availability.
In addition, since HELOCs typically offer lower interest rates compared to credit cards and personal loans, they are a cost-effective borrowing option. Plus, the interest paid on a HELOC may be tax deductible, potentially reducing your overall tax burden (be sure to check with a tax advisor to understand your specific situation).
As an added bonus, when used for home improvements, updates, or renovations, a HELOC helps you build equity in your home by increasing its overall value, while also enhancing your quality of life.
Is a HELOC Right for Me?
We offer several HELOC options and will help you decide what will work best for you based on your goals, home equity, and financial circumstances. Then we’ll guide you through every step of the easy application process. Contact us to talk about your options or apply online today.
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