3 things to know about HELOCs

Homeowners exploring their credit options should strongly consider bypass Credit card And personal loan And instead turn to their biggest investment – ​​their own home. They have built their home through a means of using equity Home equity loan or a Home Equity Line of Credit (HELOC) They could put themselves in the running for lower interest rates and a potential tax cut at the end of the year.

With a HELOC, you apply for (and hopefully get approved) a certain amount of credit based on the equity you have in your home at the time of application. Lenders generally want you to have at least 15% to 20% equity in the home when you apply, but each institution may have different requirements.

As with all financial products and services, however, it pays to understand the intricacies before signing on the dotted line While HELOCs are generally easy to use and apply for, there are some considerations to make a fully informed decision. We’ll explore these three items below.

If you think you might benefit from a HELOC, start exploring your options online

3 things to know about HELOCs

Here are three useful things to know about HELOCs

You don’t have to use your current lender

You might think that if you’re accessing your current home equity, you automatically have to use the lender that owns your mortgage, but that’s not always the case. There are many banks and lending institutions that will be happy with your business and may be willing to offer you a lower interest rate than your existing lender. That said, if your current lender knows you’re shopping around they may be more likely to keep your business by offering you competitive rates and terms.

Be sure to do your research and shopping before committing; This way you can make sure you get the best deals and lowest rates out there.

Start shopping for HELOC offers online today to see what you qualify for

Interest may be tax deductible

If you’re looking for a credit option that you can deduct from your taxes, a HELOC may be for you. If you use it for IRS-approved home repairs and improvements, you potentially can Deduct the interest you pay The year you use it when you file your annual return.

“Interest on home equity loans and lines of credit is deductible only when the borrowed funds are used to purchase, construct, or substantially improve the taxpayer’s home that secures the loan.” The IRS Says “the loan must be secured by the taxpayer’s principal home or second home (qualifying residence) and meet other requirements.

“Generally, you can deduct the home mortgage interest and points you report on Form 1098 on Schedule A (Form 1040), line 8a,” the IRS says. “However, any interest shown in Box 1 of Form 1098 from a home equity loan, or a line of credit or credit card loan secured by property, is not deductible if the proceeds are not used to purchase, construct, or substantially improve a qualified home. “

Rates come in fixed and variable options

HELOCs can have fixed or variable rates. A fixed rate is useful when initially securing a low amount, but it may be better to have a variable one if it could potentially decrease in the future. It really depends on your personal financial situation and what rate is offered at the time of application. Just go into the process with the clear-eyed knowledge that if you get a low variable rate, it may not stay low for long.

Bottom line

HELOCs can be an affordable and valuable way for homeowners to access financing at low interest rates.

As with most financial products and services, it pays to know the ins and outs before signing on the dotted line For a HELOC, this means that you don’t need to use your current mortgage lender to access your home equity. And if you use a HELOC to make major home repairs or renovations, you may be able to deduct the interest you pay when you file your tax return. But go into the process clear-eyed and understand that HELOC rates come in both fixed and variable options. Make sure you know which version is best – and most cost-effective – for your situation

Learn more about your HELOC options online now