What's a HELOC and How Can It Benefit You?
If you’re looking for a large sum of money to use for a home improvement project, or the economic devastation of COVID-19 has left you in desperate need of cash, consider tapping into your home’s equity. One great way to do this is by opening a home equity line of credit, or a HELOC. Let’s take a closer look at HELOCs and why they can be an excellent option for cash-strapped homeowners in today’s financial climate.
What is a HELOC?
A HELOC is a revolving credit line allowing homeowners to borrow money against the equity of their home. The HELOC is typically a second mortgage on a home; if the borrower owns the entire home, the HELOC is a primary mortgage.
Given that a HELOC is a line of credit and not a fixed loan, borrowers can withdraw money from the HELOC as needed rather than borrowing one lump sum. This allows for more freedom than a loan and is especially beneficial for borrowers who don’t know exactly how much money they’ll ultimately need to fund their venture.
Borrowers withdraw funds from the HELOC during a set amount of time that is known as the “draw period,” which generally lasts 5 years. Sometimes there are specific requirements when drawing funds.
How do I repay my HELOC?
Repayment of HELOCs varies, but is usually very flexible. Payments may be set up as 1.25% of the outstanding balance or interest only.
How can borrowers spend the money?
While home improvement projects are popular uses for HELOCs, borrowers are free to spend the money however they please. Some other uses for HELOCs include debt consolidation, funding a wedding, adoption, dream vacation or the launch of a new business.
Is everyone eligible for a HELOC?
Like every loan and line of credit, HELOCs have eligibility requirements and which help lenders determine the applicant’s financial wellness and responsibility. Most notably, the borrower must have equity in the home.
How much can I borrow with a HELOC?
HELOC amounts vary along with three criteria: the value of your home, the percentage of that value the lender allows you to borrow against and the outstanding amount on an existing mortgage. The rate of a HELOC is variable, but at FCCU we do have the option to lock it into a fixed rate. Another huge benefit when borrowing money for a HELOC is only paying interest on the portion of the loan that is being used.
A HELOC can be a great option now if..
Do you have an upcoming wedding, college loans or simply want to remodel your house this fall? Then a HELOC can be a great option for you now. Learn more about a HELOC, contact an FCCU lender near you or stop by today to get started.