It is no secret that consumer prices have gone up and we have been experiencing a high inflation rate in the United States. You may be using your savings to keep up with higher gas prices, food prices, consumer products prices and consumer service prices. The good news is that home values have also gone up. If you are a homeowner and need extra money for larger expenses, you may have an option available to you. A Home Equity Line of Credit (HELOC) is one of the ways to use the equity in your home to gain access to money for other expenses. A HELOC can give you financial flexibility so you can gain access to funds when needed.
What is a HELOC?
A HELOC is a line of credit you may be able to take based on the equity in your home. With a HELOC you can use the funds you borrow to consolidate debt, for home improvements and repairs, for emergency medical bills and for other large expenses. A HELOC is secured by the equity in your home. With a HELOC you can usually borrow at a lower interest rate. However, a HELOC does have origination or closing fees involved. A lender or bank will help answer your questions and help you determine if you are eligible for a HELOC.
A HELOC is Not the Same as a Mortgage
A HELOC is entirely different from a mortgage. A mortgage is a legal agreement between you and a bank or mortgage company for the purpose of borrowing money to purchase a house or other real estate property. A HELOC is money you borrow after you close on your home and is based on the equity you have in your home. With a HELOC you can only borrow up to the amount of equity you have in your home.
Different from Other Types of Loans
A HELOC is different from other types of loans as some loans are for specific purposes only (e.g., auto loan). With a HELOC you can typically use the money you borrow for a variety of expenses. Another way a HELOC is different is that you only pay interest on the amount you use or draw from the line of credit, not on the entire credit limit. With most loans, you immediately begin paying interest on the entire amount you have borrowed. With a HELOC, you will typically be charged a lower interest rate than with other loans. Other types of loans you might want to consider if you need money are a personal loan, a cash-out refinance, other manufacturer and dealer financing, and credit cards.
What Makes a HELOC the Right Choice for Your Circumstances
Every loan comes with its own benefits and drawbacks. A HELOC may be the right choice for you if you have a good amount of equity in your home and some additional savings to be able to pay the fees and payments. A HELOC is a good choice if the interest rate is lower than other loan choices. If your income is consistent and you can afford the additional monthly payment to repay the amount of the HELOC you use, it may also be the right choice. A HELOC may be consistent with your tax goals as well. For example, if you are borrowing money for the purpose of improving your home, you may be able to write off the interest you pay on your HELOC.
Home values have risen in the past few years so you may be in the advantageous position of having considerable equity in your home. This is good news if you are looking to obtain a HELOC to pay for larger expenses.