What is a home equity line of credit (HELOC)?
A HELOC is a loan that lets you use the equity in your home. It typically has a 10-year draw period and a 20-year repayment time, but these periods could be affected by the Federal Reserve as it has raised interest rates; Moreover, with a HELOC, you only pay interest on the money you borrow.
What are the benefits of a HELOC?
You can borrow more money
A HELOC is like a credit card with a line of credit instead of a set amount. It has an interest rate & a max amount to borrow. As repaid, your credit line replenishes & you can borrow again.
You can use the money for many years
A loan is for 5 yrs. You can borrow as much/little & make payments as often; after 5 yrs, you must make principal & interest payments on the balance you still owe.
You can use the money for whatever you like
HELOC can be used for any purpose, such as home improvements. Interest paid may be tax-deductible for certain home expenses.
You can use the money to pay off other loans and debts
HELOC is a line of credit to pay off other loans/debts. Use money as needed, and pay it back over timeāno need to repay all at once.
You can use the money to invest
A HELOC offers a flexible way to borrow money and use it for whatever you need. You can use it to make investments.
You can use the money to avoid foreclosure
It's a great way to avoid foreclosure because you can pay the monthly balance, keeping it from getting too high.
How does a HELOC work?
Step 1: Research home equity lines of credit and compare rates
It is essential to do your research. Compare the rates of different lenders to ensure you get the best deal. Understand the terms and conditions of the loan before signing up.
Step 2: Apply for a home equity line of credit
After researching and finding the best rate for a home equity line of credit, contact a lender to apply. The lender will review the financial info. If approved, they will inform you of the amount and terms.
Step 3: Use the funds from your home equity line of credit
Home equity financing can be used for improvements, emergencies, and debt consolidation. A credit line is available for ten years without reapplying.
Step 4: Repay your home equity line of credit
A HELOC can be repaid in multiple ways. Alternatively, you can access your home's equity through a cash-out refinance. Click the link to learn more about home mortgage refinance
What are the risks of a HELOC?
Risks of a HELOC include
interest rate volatility
prepayment penalties
loan limit restrictions
There are also risks associated with using a HELOC, such as interest rate shock and payment shock. Interest rate shock is the risk that interest rates can go up, resulting in higher payments. Payment shock is the risk of having to make a larger payment than what was originally agreed upon.
Lakeview Mortgage Bankers can help you with your HELOC loans. Contact us today, and we'll do our best to bring you the home in your dreams!