5 Things You Need to Know About HELOC Loans

A home equity line of credit (HELOC) is an excellent option that homeowners can consider if they need to borrow money. It will generally offer better interest rates and payback terms than many personal loans and alternate lines of credit (such as credit cards). This is because a HELOC leverages your home equity to establish a line of credit in your name.

If you have a good amount of home equity built up, a HELOC is just one lending solution to consider along with home equity loans and cash-out refinancing. Therefore, it’s smart to understand how home equity lines of credit work before making a big financial decision. 

HELOC

Here Are 5 Of The Most Important Things You Need To Know About HELOCS:

  • How a HELOC Works

It’s actually pretty simple. You have home equity, meaning your house is worth more than you currently owe on your mortgage. You need money for other important expenses, such as paying down higher-interest debts or investing back into the property with home improvements and upgrades. Your home equity provides you with a great deal of leverage when establishing this special line of credit. A mortgage lender will set a borrowing limit that you can draw from as you see fit. This is different from a home equity loan that is typically one lump sum amount. 

You can then pull funds from the HELOC at different periods within the defined terms of the credit line. The payback period may vary based on your loan and lender. Before you take out any funds, be sure to ask about how and when you have to start making payments, what the minimums are, fees, taxes, etc. The most common HELOC has a 10-year draw period and a 20-year repayment period.

  • How Much Can You Borrow with a HELOC?

The credit limit on this loan will be set by the mortgage lender. It will be determined based on your financial qualifying criteria, including credit score, income, other debts, and more. It will also matter how much home equity you have. A qualified homeowner with $1 million in equity will obviously have a larger credit line than a homeowner with only $20,000 in home equity. 

No matter what loan limit you are approved for, you should only withdraw what you need when you need it. That is one best advantages of a home equity line of credit. It can help keep you from overspending and minimizing the additional debt you are building up. Remember, this is money you will eventually have to pay back. Don’t be too reckless with it!

  • HELOC Interest Rates

In general, HELOCs will offer lower interest rates compared to traditional home equity loans, personal loans and other consumer lines of credit. This makes one of these loans a very attractive option for homeowners who want to borrow some cash now by tapping into their home equity. Home equity is only truly realized when you sell the property. Sometimes, it’s nice to have access to it earlier. To qualify for the lowest possible HELOC interest rate, you will want to have a high credit score, steady income and a healthy amount of home equity. Interest rates may be variable based on the amount you end up withdrawing, when you make payments and how quickly you pay down the balance.

  • How to Utilize HELOC Funds

A HELOC is usually connected directly with your bank account, allowing you to request withdrawals as needed. The funds will be transferred directly into your account. After that, you can use the money however you see fit. One of the best uses for a HELOC is to reinvest money back into your property. You can make home improvements or upgrades that ultimately increase the potential resale value of your house. In turn, you are building up even more home equity to help offset the funds you are borrowing with the HELOC. In some ways, a well-invested HELOC can pay for itself over time. 

HELOC funds can also be used for other important things like unexpected medical bills or college expenses. You can also use a HELOC or home equity loan to pay off other high-interest debts like credit cards, personal loans or car loans. Just remember you are trading one form of debt for another. Your primary benefits will be a lower interest rate and perhaps a more flexible repayment period. 

  • How to Qualify for a HELOC

If you are interested in learning more about HELOCs or want to apply, the first step is to contact a mortgage company that offers home equity lines of credit. They can guide you through the process and review your application to see if you qualify. Ask as many questions as you need and make sure you understand all the details of the credit line. Learn your qualified interest rate, fees, taxes, draw period, repayment period, draw process and credit limit. 

For more information about a HELOC home equity line of credit, contact Moreira Team | MortgageRight today. Let our team help you make the right decisions as a homeowner. See if this is the best solution for you or if there is another lending solution that makes more sense.

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