There are so many benefits of owning a home, like having control over where you live and the opportunity to build equity in a valuable asset. That equity also offers another benefit – the ability to borrow to finance life’s expenses with a home equity line of credit or HELOC for short. HELOCs can be a smart way to finance life’s expenses. But before you apply for one, make sure you understand how they work. Let’s take a look:
What is a home equity line of credit? A home equity line of credit essentially is a second mortgage on your home secured by the equity in your home, which is the value of your home minus the amount you owe on your mortgage. It’s a revolving line that allows you to borrow and repay funds over and again.
How do HELOCs work? With a HELOC, you have a 10-year draw period to borrow funds. During that time, you’ll only have to make minimum, payments of interest. After the draw period, your line will enter repayment when you must make fixed monthly payments of principal and interest.
How is interest charged? When you get a home equity line of credit, you’ll have a maximum line amount, the total amount you can borrow. You will only pay interest on the amount of your line that you use.
Avoid a job change while applying for a mortgage. During the approval process, lenders will look at your employment history. Changing jobs during the mortgage process could impact your ability to qualify, so try to wait until after you close on the home.
HELOCs offer variable rates tied to an index, such as the Prime rate. When that index changes, your interest rate will change as well.
What types of expenses are ideal for HELOCs? HELOCs are ideal if you want to borrow over time to meet ongoing expenses. For example, you may want to use a HELOC to make home improvements or as a safety net to help you prepare for unexpected expenses.
Wondering if a HELOC is right for you? We’re here to help you decide. Talk to a lender or stop by your nearest branch.