What is a Home Equity Line of Credit or HELOC?

a couple dances around their new kitchen remodeled with HELOC funds

A Home Equity Line of Credit (HELOC) is a flexible financial tool that allows homeowners to access funds by borrowing against the equity they've built up in their property. Equity is the difference between a home's current market value and the remaining balance on the mortgage. Unlike a traditional loan, a HELOC functions like a revolving credit line, similar to a credit card, with a predetermined credit limit.

How Does a HELOC Work?

HELOCs typically consist of two phases: the draw period and the repayment period. During the draw period, which usually lasts around 5-10 years, homeowners can borrow and repay funds as needed, up to the credit limit. Interest is only charged on the amount borrowed. Borrowers have the flexibility to use the funds for various purposes, including home improvements, debt consolidation, education, or unexpected expenses.

After the draw period, the repayment period begins. During this phase, borrowers can no longer withdraw funds and are required to make regular monthly payments. These payments will cover both the amount borrowed and any interest that has accumulated. HELOC rates are typically variable and may fluctuate based on market rates.

Is a HELOC a Good Idea?

HELOCs offer several benefits, including potentially lower interest rates compared to credit cards and personal loans, the ability to deduct interest payments (in certain cases) on taxes, and the freedom to borrow only what's needed, saving on unnecessary interest costs. However, there are also considerations to keep in mind, such as the risk of losing your home if you're unable to make payments and the potential for interest rate increases during the repayment period. To find the right HELOC for you, use a HELOC calculator the estimate the costs.

To see our HELOC rates and find out how much you qualify for, apply for a HELOC today.

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