Benefits of a Home Equity Line of Credit (HELOC)

For most people there is a time in your life when you could use a little bit of extra cash — to help pay for tuition as your child goes away to college, pay off medical bills, make repairs or renovate your home, or pay off high-interest debts. Your home might offer an opportunity to borrow money through a home equity line of credit (HELOC).

What is a HELOC?

A home equity line of credit is a special type of loan that allows homeowners to use the equity they have in their home as a line of credit, and get cash to use right away. A HELOC isn’t the right choice for everyone, but there are definitely situations where it can offer you a financial lifeline. Here are some of the benefits of these loans.

Fixed Payments

When you get approved for a HELOC, your lender will provide the terms of the loan and a schedule of all your payments. That makes it easy to budget from month to month as you get the loan paid off. In most cases these loans also have multiple options for the length of the repayment period, giving homeowners the ability to choose whether you want a higher monthly payment and shorter repayment period, or a longer time to repay it and a lower monthly cost.

Fixed Interest Rates

Unlike credit cards and other loans, a HELOC usually has a fixed interest rate. That means your lender can tell you what your monthly payments will be, and they won’t change even if interest rates go up. Since most credit card interest rates are tied to the “prime rate” set by the Federal Reserve, borrowing money with a low-rate card today could result in very high interest payments in the future if it takes you a while to pay off the loan.

Money Up Front

A HELOC is structured to provide you with all the money for your loan immediately. As soon as the loan is approved, you get the cash that you need to do whatever you are planning. If you don’t need it all right now — for example, if you borrow the money to pay for four years of college tuition — you can even put it into an interest-bearing account and earn some money on your money to help pay back the loan.

The Downside of HELOCs

While HELOCs can be very beneficial, there are some important things to know before you take out one of these loans:

• Your home is the collateral for the loan, so if you can’t make payments on your HELOC, you could lose your home.
• If your home’s value declines as a result of a market downturn or other factors, you might owe more than your home is worth between your mortgage and your HELOC.
• A lender may charge closing costs for most HELOCs, just like any second mortgage loan.

To learn more about HELOCs and find out if they are the right financial decision for you, talk to the experienced lenders at Integrity First Lending today.