Home Equity Line of Credit
What is a Home Equity Line of Credit?
A Home Equity Line Of Credit (HELOC) is sometimes referred to as a “second mortgage” because it gives you access to cash based on the value of your home. A HELOC is different from other home loans because you don’t borrow a fixed amount and pay it back over time. Instead, it is a revolving source of funds that can be used as needed. There is no need to reapply for another loan and it can be used over the course of several years. It’s a flexible way to borrow and you can pay all or part of the balance back, much like a credit card.
- Low interest
- Right to pay early
- No payment when there is no balance
- Tax deductible*
The maximum amount that you can borrow depends on your equity. Typically, a credit limit on a HELOC is 75% to 85% of your home value, minus your mortgage balance.
For example, say you have a $300,000 home with a balance of $200,000 on your first mortgage and your bank offers you a HELOC based on 85% of the house’s value.
- $300,000 x 85% = $255,000
- $255,000 – $200,000 = $55,000, your maximum line of credit limit.
Before setting your credit limit, the bank will also take into account your income, credit score and any other debts and financial obligations you might have. Once those are all looked at, the bank will determine your credit limit. Once it’s been set, you are ready to use your HELOC.
How to use it?
Most often a HELOC is used for home renovations or repairs, which in turn will increase the value of your home. If you use the money to buy, build or improve your home, the interest may even be tax-deductible according to the IRS*. That doesn’t mean it can’t be used for other items, such as paying for education, purchasing a car, traveling or even consolidating debt. Whatever you choose to do with your loan, it is important to keep in mind that you pay back the
original amount, plus interest.
If you are a homeowner and looking for a convenient, flexible way to borrow, let’s talk! Contact our home equity line of credit experts today, and we’ll work with you to make your dreams become a realty.
*Speak with a tax advisor to determine if your HELOC could be tax deductible.