A Home Equity Line of Credit, known as a HELOC, is a line of credit that homeowners can use for a variety of purposes, from consolidating higher-interest rate debt, to financing home improvements to purchasing another home.
How Does a HELOC Work?
A HELOC is a revolving line of credit similar to a credit card, which means you’re approved for a specific amount of credit and can borrow against your limit, pay down the balance, and repeat the process as you need the funds.
A HELOC traditionally has two time periods – the draw period, typically the first 10 years, followed by the repayment period of 10 to 20 years.
Do You Qualify for a HELOC?
In order to qualify for a HELOC, you’ll need to have established equity in your home. That means that after making regular mortgage payments, you owe less than the total value of your home. Other factors that will be taken into consideration include your credit score, home value, and your ability to repay the loan by looking at your debts.
Benefits of a HELOC
A HELOC not only gives the borrower the freedom to decide when and if to use the money, but also offers the flexibility of how much and when. Additionally, most HELOCs allow you to make interest-only payments during the draw period allowing for payments that fit into your budget.
That’s why many homeowners choose this type of credit to pay for home improvements and large home renovation projects. As costs come up, the homeowner can pay for supplies with the HELOC, pay that purchase off, and have the option to draw upon it again for the next expense. And in some cases, the interest paid may be tax deductible; consult your tax advisor regarding the deductibility of interest and charges.
Who Should Not Use a HELOC
A HELOC may not necessarily be the right option for every homeowner or every situation. For those that are looking for a small line of credit, another credit option like a low interest credit card might make more sense. Those who are looking for an option to cover everyday expenses or small purchases will also be better off with a different financing option.
Stop in to ask our experts whether a HELOC might be the option for you, and visit the Fremont Bank website
to learn more about Home Equity Lines of Credit and other credit options available through your community bank.