What are Home Equity Line of Credit Loans?
Can your home's value be turned into cash that you can access when you need it? It can if you qualify for a Home Equity Line of Credit (HELOC) loan.
Home Equity Line of Credit Overview
A HELOC is a type of home loan – usually with an adjustable rate – that gives the homeowner access to a line of credit determined by the lender from the value of the home. While a HELOC is commonly referred to as a second mortgage, it can be issued as a primary loan.
Home Equity Line of Credit Benefits
Most borrowers get a HELOC for a major home repair or remodeling project. If the loan is used for home improvements and repair, you can write the interest off your taxes. (Consult a trusted tax advisor or tax professional for financial or tax advice.)
With the line of credit aspect of a HELOC, you can withdraw only the funds you need versus getting one lump sum of cash in a typical loan situation, which may take longer to pay off with the added funds and additional interest.
A HELOC could help you pay for:
- Major indoor and/or outdoor home improvements/repairs, such as a new kitchen, bathroom, patio, deck, etc.
- Consolidate your debt/improve your debt-to-income ratio
- Auto loan
- Student loans
- Medical bills
- Elderly care
- Investment property
- Boost your credit score
- Get a lower interest rate
- Improve your financial situation
- Get potential tax deductions (be sure to consult a tax professional)
- Have simple interest instead of compound credit card interest
Home Equity Line of Credit Requirements
What is needed for a HELOC loan?
First and foremost, you need to have enough equity in your home to qualify for a HELOC loan.
For example, if your home is worth $300,000 and you owe $100,000, a lender will typically let you access up to 80% of the home’s value (minus your current mortgage), which in this example would be $240,000. When you subtract the current mortgage, you arrive at a maximum HELOC amount of $140,000 to access as credit.
In addition, credit history, income and other debts/financial obligations will be considered for loan eligibility. An appraisal of your home may be required.
Home Equity Line of Credit Loan Options
Fixed-rate HELOC: The interest rate will not change through the life of the loan allowing you to lock in a stable rate without worrying that it will go up. Both the interest and principal must be paid off during the term of the fixed rate loan.
Adjustable-rate HELOC: The interest rate can fluctuate monthly, depending on the market industry rate. This loan rate is initially lower than the fixed-rate HELOC. You pay only interest during the draw period (usually 10 years). After this period, you are required to pay the interest and the principal.
Hybrid HELOC: This option allows you to convert a portion or all of the loan from a variable into a fixed-rate loan without having to reapply for the loan. A term would need to be chosen for paying back the fixed-rate portion.
HELOC Loan Rates
Is a HELOC loan right for you? Contact us today and we can discuss your situation and find the right loan to fit your financial needs.