HELOC: Home Equity Line of Credit
What is a HELOC?
A home equity line of credit, known as a HELOC, is a revolving line of credit borrowed against the equity of your home. Like a credit card, HELOC loans are flexible, allowing you to draw money as you need it instead of taking out a single lump sum loan.
How does a HELOC loan work?
Since a HELOC loan is a mortgage line of credit, you can borrow funds up to a set credit limit, and interest is charged on the amount borrowed. The revolving credit line can be paid down and reused during your draw term, which typically lasts 5 to 10 years. You’ll only pay interest throughout the draw term.
After the draw term is complete, you may either pay the balance in full or pay according to a set schedule (interest must still be paid). You could also refinance the equity line for an additional 5 to 10 years.
What are the benefits of a HELOC?
What you do with funds from a HELOC is up to you – it’s your money, after all! Home improvements, large purchases, tuition costs … here are a few popular ways you can put your equity to work for you:
- Set up access to emergency (rainy day) funds
- Buy a new car, truck, boat, or RV
- Pay for college tuition
- Renovate or remodel your home
- Consolidate higher-interest debt
Additional HELOC loan benefits
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1
Customization
HELOC loans offer variable or fixed interest rates that are usually lower than the interest rate on a credit card. Credit limits are also variable and depend on your home equity.
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2
Convenience
Closing on a HELOC loan is easy and may even take place in your own home.
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3
Accessibility
Several options are available to you for accessing cash, including personal withdrawals, check writing, and card use.
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4
Flexibility
You choose how much to borrow and use, as well as how much to repay and when, provided it’s equal to or more than the minimum payment.
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5
Tax deductions
Depending on your situation, interest paid on a HELOC loan may be 100% tax deductible under federal and state income tax laws. Not all states may allow this deduction. Consult a tax advisor to make sure you’re eligible.
Eligibility requirements
Equity in your home is a key component in determining your available credit. When considering a HELOC, remember that the loans are secured by your home. Failure to pay could damage your credit standing and result in the loss of your home through foreclosure.
If you’re ready to put your home’s equity to work for you, we’re here to help get it done.
