Home Equity
If you own a home, you can potentially use its equity — the difference between its current market value and your outstanding mortgage balance — to fund significant expenses. A HELOC provides homeowners with convenient, flexible access to a revolving line of credit based on the equity they've accumulated in their homes.
About HELOCs
A Home Equity Line of Credit (HELOC) is a revolving line of credit that uses the borrower's home as collateral. The amount of equity in the home — the difference between its market value and any remaining mortgage balance — determines the maximum credit limit available.
Once approved, the borrower is assigned a maximum borrowing limit, similar to a credit card. They can draw from this line of credit as needed, and like a credit card, the HELOC is a revolving line. This means as you repay the balance, you can borrow against it again, up to the credit limit, during the draw period (the time frame when borrowing is allowed).
After the draw period ends, the HELOC enters a repayment period, which typically lasts up to 20 years. During this time, you can no longer borrow, and you must repay the remaining balance.
Once approved, the borrower is assigned a maximum borrowing limit, similar to a credit card. They can draw from this line of credit as needed, and like a credit card, the HELOC is a revolving line. This means as you repay the balance, you can borrow against it again, up to the credit limit, during the draw period (the time frame when borrowing is allowed).
After the draw period ends, the HELOC enters a repayment period, which typically lasts up to 20 years. During this time, you can no longer borrow, and you must repay the remaining balance.
A Home Equity Line of Credit (HELOC) offers flexibility and often provides lower interest rates than unsecured debt, making it a valuable tool for improving your financial health. Here are a few ways a HELOC can help:
- Debt Consolidation: Consolidate high-interest debt, such as credit card balances or personal loans, into a single, lower-interest payment. This can help you save money and streamline payments.
- Cover Education Expenses: Use a HELOC to pay for college tuition, fees, and other educational expenses, providing more manageable payment options.
- Emergency Expenses: Keep a HELOC as a backup emergency fund to provide financial security in case of unexpected events, like job loss or medical emergencies.
- Home Improvements: Use the funds for home repairs, renovations, or remodeling, which can increase your home’s value and enhance your living space.
The amount of equity available for a home equity loan or home equity line of credit is determined by the loan-to-value ratio of the home and the ratio requirements of the lender. A loan-to-value ratio is calculated by taking total mortgage debt (including any second mortgages or existing home equity loans) and dividing it by the current, appraised value of the home. If you are not sure of your home's appraised value you can estimate value using your home's current tax assesment, or comparable recent sales in your neighborhood. Use this calculator to estimate available equity in your home.
While HELOCs offer significant benefits, it’s crucial to remember that failing to repay as agreed could put your home at risk. Always borrow responsibly and make sure you have a solid repayment plan in place before tapping into a HELOC.
Learn more about our HELOC Flex or contact us to see if a HELOC Flex can help you!
Learn more about our HELOC Flex or contact us to see if a HELOC Flex can help you!