A Home Equity Line of Credit.. or HELOC, is a unique kind of mortgage. It enables you to make use of the equity you have built up in your home without having to refinance your entire home loan. It is a specific type of home loan, a second loan against your home, or a “second mortgage” as it is often called.
How much money you will be able to borrow through a HELOC depends on how much your home is worth and how much equity you have. Your equity is simply the difference between the current market price and how much you owe on your home. If your home is valued at $350,000 and your outstanding mortgage is $200,000, then you have $150,000 in equity.
Having a lot of equity in your home is a great asset. However, if you are confronted with immediate financial needs, it will not do you much good to have all your money tied up in equity that you do not have immediate access to.
To open a HELOC enables you to have access to the equity in your home if you need the extra money. You may require the cash to make landscape improvements or kitchen upgrades.. or to repair a leaking roof. In this way a HELOC can help you to get the cash you need for upgrades and repairs without costing you a lot of out of pocket expenses.
Another common use for a HELOC is for debt consolidation. Since the rate of interest on the HELOC is lower compared to those of credit cards and other personal debt, the HELOC can be an efficient means to clear your debt permanently. Keep in mind, however, that if you should get into financial trouble and are unable to meet your monthly mortgage obligations you may be in danger of losing your home.
The interest rate on your HELOC will be higher than the rate on your first mortgage. This is because from the financial institution’s perspective.. second home loans tend to be a bit more risky.
Another of the factors which will be considered is the amount of equity you intend to cash out. This will also impact your interest rate. The more equity you leave in the home, the lower the interest rate.
The types of HELOCs vary, just as there are different types of first home loans. You can get a fixed rate of interest or a flexible rate of interest. You can take the entire amount of the second loan in a lump sum, or you can use it only as you need it.. or take part of it now to meet urgent expenses and leave the remainder as a credit line that you may draw from should you have additional expenses.
Some financial institutions will issue checks which you can use to draw against your Home Equity Line of Credit, up to the amount of the loan you have been approved for. Others may even provide an ATM card for automatic withdrawals from your HELOC.
Whatever your requirements might be, there is a HELOC available for you. Look around as you would do for a first home loan and ensure that you are proposed the best possible offer.