Many people use such itemsAnd For the extra cost, homeowners have a reliable and responsible option to pursue: their own home. Considering that a mortgage is typically a person’s largest bill each month, it makes sense that this investment is also one of the largest bills a homeowner can help cover.
It can take many forms – a traditional oneA And, for older homeowners, a . Homeowners can also consider getting one , or a home equity line of credit. This allows the homeowner to access a portion of the equity they have built up in their home to pay off debt, make major purchases, or even make home repairs and renovations (the latter of which may be tax deductible).
But how do HELOCs work, exactly? And is it profitable to go this way? This is what we will explore in detail below. If you think you might benefit from a HELOC, start exploring your options here or use the table below to check your eligibility.
How does a HELOC work?
if youThen you should not worry too much about the process. They work in a simple fashion. If you’ve ever used a credit card, you’re already familiar with how it works
With a HELOC, you apply (and hopefully get approved) to use a certain amount of credit based on the equity you have in your home at the time of application. You may end up getting more approvals than you need, but you don’t have to (and shouldn’t) use everything you were approved for. You need to refund only the actual amount you used, not the full amount authorized for you. This will help reduce the amount of interest you have to pay in the end. Lenders generally want you to have at least 15% to 20% equity in your home when you apply, but each lender may have different requirements.
Repayment periods vary depending on the terms of your HELOC and the lender you use. They can range from 10 to 20 years, though you’re not limited if you want to pay it back sooner. Interest rates on HELOCs vary but, as with other types of credit, the best terms are usually reserved for applicantsAnd the clearest credit history.
Plug in your zip code and credit score here to determine eligibility or use the table below to get started.
What are HELOCs worth?
As with most financial products and services, the true benefits of a HELOC relate to the individual and their personal financial situation. That said, a HELOC can be valuable for a number of reasons. Here are the two main ones.
- Interest rates are reasonable. The average interest rate for a credit card is around 20% while a personal loan is 11%. But a HELOC is currently around 7%, assuming your credit history qualifies. So, if you need a backup way to pay your bills, HELOCs provide a low-interest way to do so.
- Interest may be tax deductible. Another way HELOCs are better than personal loans and credit cards? Interest on such credit may be tax-deductible, assuming it was used for an IRS-approved purpose. “Home equity loan interest and lines of credit are deductible only when the borrowed funds are used to purchase, construct, or substantially improve the taxpayer’s home that secures the loan.” The IRS Explains “the loan must be secured by the taxpayer’s principal home or second home (qualified residence) and meet other requirements.”
Explore your HELOC options online now to determine eligibility
HELOCs work like credit cards and are easy to apply for Once approved, you can use as much or as little credit as you want, knowing that you will only pay interest on the amount you withdraw. HELOCS are also beneficial for a number of reasons, mainly due to their favorable interest rates and potential tax deductions if used for the appropriate purposes.