A home equity line of credit (HELOC) is a type of loan offered to homeowners using their home as collateral. The amount of loan pre-approved depends on the value of the home, household income, credit score and other factors.
Many people have similar questions regarding HELOCs, so we’re here to answer some of them for you! Check out these frequently asked questions about home equity lines of credit to learn more about them and see if it’s the right fit for you.
What is my home equity?
Home equity is the value of your home minus the amount of mortgage owed. For instance, if your home value today is $150,000, and your unpaid mortgage amount is $80,000 then your home equity is $70,000 which you can use as security to borrow against.
What is home equity borrowing?
Home equity borrowing refers to using your home equity to secure a loan at a usually affordable rate. You can get yourself into a good approval and rate situation when you have enough income, a good credit score and home equity as security. Your home is the collateral for this loan, so you want to ensure that you’re in the right financial situation to handle a home equity line of credit.
What makes a HELOC unique from other home equity loans?
Like other loans, with a Home Equity Line of Credit, you keep your existing mortgage. However, a HELOC may be more flexible than other home loan options in terms of loan terms and rates.
How much can one borrow?
The amount one can borrow depends on loan to value ratio in most home equity loans. However, with HELOCs, you may be able to access up to 80% of the home’s value depending on your qualifications. Every HELOC situation will be different.
What about a HELOC’s set up cost and time to get access to funds?
Unlike other loans that take months and cost thousands, HELOCs can be set up in a couple of weeks depending on the lending situation.
Do HELOCs rates vary?
Previously, many HELOCs offered variable rates that depended on the loan market. Currently, many lenders have embraced a system that keeps the rate fixed for an agreed period of time.
What are the best uses of a HELOC?
A Home Equity Line of Credit loan can be best used for a few reasons. Many borrowers use it for home improvements, higher education costs, loan consolidation, or medical expenses. You want to be sure that you’re in the right financial position to pay your HELOC payments, or else it could lead to an unhealthy financial issue.
If you think a home equity line of credit might be right for you and would like to learn more about your options, contact Mechanics Cooperative Bank today!