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What you should know about HELOCs

Heloc loan concept.  Key in hand as a symbol of buying property.

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With increasing costs for Daily shopping, many people are having more trouble than usual sticking to their budgets. And for those who are spending more than they’re making by running up credit card balances, rising interest rates can also make paying off debt challenging.

At the same time, real estate prices have also generally been rising over the past few years. So, homeowners can gain equity based on the difference between their mortgage balance and their current appraised home value.

One way to access that equity and gain financial flexibility, such as paying off high-interest debt, is to open one Home Equity Line of Credit (HELOC). If you think you might benefit from a HELOC, start exploring your options here or use the table below to check eligibility.

What is a HELOC?

A HELOC It is true to its name in that it is a revolving line of credit based on the amount of equity a homeowner has. But what exactly does that mean?

A revolving line of credit involves a fixed borrowing limit that can be drawn and repaid on an ongoing basis with specific terms that vary based on the lender.

A credit card is an example of a revolving line of credit. Your credit card can have a credit limit of $10,000 that you can borrow from at any time by swiping your card instead of paying cash to make purchases. If you make a $5,000 purchase, you’ll have $5,000 left on your credit line, but after you pay off your balance, you’ll be back to the $10,000 limit.

A HELOC is a line of credit that you can draw from as needed, unlike a home equity loan that is paid off in one lump sum. You may not want to borrow $100,000 all at once, but having a line of credit open as needed can be helpful.

HELOC limits are often much higher than credit card limits, assuming you’ve built up some home equity, equal to your mortgage balance minus the appraised value of your property. Even if you haven’t paid much on your mortgage, you may have a lot of home equity based on your home’s appreciation during the recent real estate boom.

In general, You can borrow Up to 85% of your home’s value based on a combined loan, meaning your mortgage balance and your HELOC can equal up to 85% of your home’s appraised value. However, this may vary based on the lender and your situation.

HELOCs are also secured against your home, meaning the lender can foreclose on your home if you default on your loan. While this may increase your risk, it may give lenders more flexibility to provide you with a higher limit than an unsecured loan. You can now easily explore your HELOC options online or use the table below to check out some local offers.

How a HELOC works

A HELOC typically works by having two periods: a draw period followed by a repayment period.

During the drawdown period, you can borrow from your HELOC as needed, although lenders may have different conditions surrounding drawdown requirements. This period usually lasts about 10 years.

In many cases, instead of paying back the principal, you only have to pay interest on the amount you borrow at the time of draw. That said, you may occasionally want to make principal payments if you want to refresh your line of credit. Interest rates are generally variable, so they can go up or down over time based on market conditions.

After the draw period ends, some HELOCs have multi-year repayment periods, such as 10-15 years where you pay back principal and interest. With some HELOCs, however, you must pay back what you borrowed when you reach the repayment term, known as a balloon payment.

Advantages of using a HELOC

Using a HELOC can help homeowners access funds without having to borrow a large amount at once. By being able to draw on a line of credit, you can adapt to changing circumstances.

For example, maybe you want to borrow some money to redo your kitchen, but also want the option to borrow more over a few years if you also want to redo your bathrooms. Instead of getting a separate loan for each occasion, you can draw from your HELOC as needed. HELOC interest may also be tax-deductible when using the funds to improve your home, though you’ll want to make sure the current IRS rules.

Another one A HELOC facility Interest rates are generally lower than some other types of credit lines. That’s not to say that HELOCs are a free source of funding — current rates are around 7-8% as of March 2023 — but credit card rates are around 20%, for example.

So, if you’re looking to pay off high-interest debt, using a HELOC can be beneficial and then you’ll have a more affordable line of credit. Use the table below to see what HELOC interest rates are available to you

How to Get a HELOC Now

To get a HELOC now, you can search for lenders that offer HELOCs online or visit a local bank or credit union, for example. The process is similar to getting a mortgage in the sense that you can shop around for different lenders and compare their interest rates, fees, terms, etc.

Keep in mind that taking out a HELOC has potential drawbacks, such as if you lose your home by default. And if you sell your home, you usually have to pay off the HELOC at that time. You may pay more in interest based on a variable rate, say, as opposed to taking out a fixed-rate home equity loan. Cash-out refinance mortgagesDepends on how the market goes.

So, you should do your due diligence and consider talking to a trusted advisor who can help you weigh your options. You can start exploring your HELOC options online now

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