A home equity line of credit is a great way
to use your home equity to finance things like home improvements, paying
off debt, buying a second home, or purchasing a new car.
The way a home equity line of credit (HELOC) works is very similar to the way a credit card works, although it is different in the sense that your home equity is used as collateral. This allows you to receive a line of credit from which you can draw money.
Using your home equity line of credit to pay for a variety of expenses (home improvements, paying off debt, etc.) is a much more sound and secure financial alternative than using credit cards. Here are
the top 4 home equity line of credit benefits:
- You get lower interest rates than you would
with your credit cards. Therefore you pay less interest over the life
of the loan.
- You receive tax advantages that are not available with credit cards. With a home equity line of credit, the interest is tax-deductible. Credit card interest is not tax-deductible.
- You get flexibility in your payments with interest-only options. With an interest-only home equity line of credit, you may have the option to pay only the interest for a pre-determined amount of time, or pay interest plus as much or as little principal as you want.
- You get much larger credit limits, as much as up to $500,000. This is a ideal option when you have to make a larger purchases like creating an addition to your home.
A home equity line of credit has several unique characteristics. Here is an overview:
- During the initial years of the loan, you are usually only required to make interest-only payments and you only make payments if and when you draw money from your account.
- After the initial years of the loan, the full balance is amortized and paid off over the remaining years. An initial minimum draw (taking the money in cash) is sometimes required at closing. However, we do not require an initial minimum draw on HELOCs.
- Your interest rate adjusts as the result of an index plus a margin. The
index, which can change, is the Prime Rate as published in the Wall Street
Journal at the time of the adjustment period. The margin, which can not
change, will be determined at the time of your application.
Here's how the home equity line of credit application
process works:
- First, we ask for some basic information about you, your income and the property. There's generally less paperwork involved, so closing on a home equity line of credit is quicker than a standard first mortgage.
- We can usually approve you right over the phone, schedule your closing online, and close your home equity line of credit in as little as 7-10 days.
If you would like to talk to a Home Loan Expert
and learn more about home equity lines of credit, refinancing,
applying for a mortgage or a home equity line of credit, simply
fill out the form below for a free, no-obligation consultation.
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