You may be interested in getting a home equity line of credit or perhaps have at least heard of it, bringing you here to read this blog. A HELOC comes with a lot of benefits such as relatively low interest rare, possible tax deduction, and access to your home equity, no wonder it is so tempting to get a HELOC!
Is a HELOC Right for You?
If you’re looking for ways to tap your home equity, then getting a HELOC is one of the options that could be right for you – but at a cost. A HELOC is still a type of loan and loans always come with a set of risks along with potential benefits. It is up to you to research these factors and determine if the benefits outweighs the risks. Remember, failure to pay your HELOC can mean the loss of your home as this type of home loan uses your home as collateral.
What is a HELOC in Simple Terms?
A HELOC is a line of credit that is tied to your home’s equity and functions as a revolving form of credit. It is similar to having a credit card but with potential for a truly high credit limit because the homeowner’s home equity is a major factor in determining how much can one borrow through a HELOC. Because of this, people who get a HELOC often do so to finance major expenses such as paying for higher education, recurrent medical bills, or home improvements.
How Does a HELOC Work?
With a HELOC, the borrower is approved for a certain credit limit that the borrower can borrow all at once, or little by little if needed be. The credit limit is based on several factors including the value of the home equity that the homeowner had built, the ability to pay, credit score, financial history, outstanding debts, and other financial obligations.
HELOCs typically come with a fixed period of borrowing followed by a period of repayment as well as possible renewal. Note that some plans will require a full payment before allowing a renewal while some will allow to renew as soon as the borrowing period is over. This varies from one lender to another.
Shopping for the Right HELOC Plan
Getting a HELOC comes with obligations and certain limitations. You will want to make sure that you’ve considered various lenders/providers to see which plans will fit your needs and ability to pay. Different plans have different features as well as interest rates. A low interest rate may apply for the first few months, so you better watch out for possible financial traps that you might overlook. You should also consider accompanying fees, needed paperwork, and upfront charges before choosing a provider. It won’t hurt to consult with mortgage professionals to explore other ways of tapping your home equity, such as getting a second mortgage instead of a HELOC.
Getting a HELOC is an important decision that you shouldn’t make blindly. If you have questions about getting a HELOC or how to leverage your home equity, do not hesitate to contact us at Mortgage Central. We’d be happy to help!