 |
| Need a Loan? Why a Home Equity Line of Credit Might be Right for You |
zlaxwin – First, make sure you know what a home equity line of credit (HELOC) really is and what it’s used for. A HELOC can be helpful when you need to get more cash out of your home. Most HELOCs are attached to second mortgages, but there are also some that can function on their own as the primary loan on your home. In this blog, we’ll take a look at what you should consider if you think getting a HELOC might be right for you and how to go about getting one if you decide that it would benefit you to do so.
What is a HELOC?
A home equity line of credit (HELOC) is an unsecured loan that is secured by the equity in your home. Like with any other loan, you can borrow as much or as little as you want and make payments on whatever schedule works best for you. Unlike most loans, though, once you’ve borrowed the money it doesn’t have to be paid back all at once-you can borrow again and again as long as your house remains in good shape. If something happens to your home and it no longer has equity, then your HELOC will become null and void.
How much can you borrow
Home equity lines of credit are often used to help homeowners with large or unexpected expenses, or to make major home improvements. They are different from other types of loans because they allow you to borrow money from the equity in your home.
A home equity line of credit typically offers more flexibility than other types of loans and can range from $10,000 to $100,000. The minimum loan amount is $10,000 but the maximum depends on your credit score.
You can borrow up to 75% (or $75,000) if your FICO® score is 720-740, 60% ($60,000) at 650-690 and 50% ($50,000) at 600-649.
The interest rate varies based on your credit score and changes as you make payments. Typically, if your FICO® score is less than 600, you’ll be charged an annual percentage rate (APR) of around 5% to 7%. If your credit score is 650 or higher, it could range from about 3% to 4%.
If you want to save money on interest over time, check out our tips for paying off home equity lines faster. Because these loans aren’t backed by collateral other than your home, they often come with slightly higher rates than some other types of loans. That’s because lenders consider them riskier than mortgages or auto loans that are secured by property.
When do you need it
Home equity loans and home equity lines of credit offer an alternative to traditional bank loans, and they can provide the funds you need to buy that new house, renovate your kitchen or start your own business. But before you decide to go with one over the other, it’s important to understand how the two products differ.
Home equity loans are more like traditional bank loans in that they’re secured by the value of your home, so if you don’t make payments on your loan, lenders can seize your home and sell it at auction (hence the term home-equity loan). Home equity lines of credit work differently in that they’re unsecured debts that require no collateral.
Is it right for you
If you need to borrow money, but don’t want to pay the high interest rates that come with most loans, a home equity line of credit might be right for you. A home equity line of credit (HELOC) is an unsecured, revolving line of credit secured by your home’s value. This means you can borrow as much as you want and repay it over time without having to worry about paying back the entire amount at once.
HELOCs typically have lower interest rates than other types of loans because they are based on your home’s equity and not your credit score. If you are considering getting a HELOC, here are some things to consider: – Can I afford my current expenses? – Am I in good standing with my mortgage lender?
How can you use the money
A home equity line of credit can help you borrow the money you need to take advantage of an opportunity or make improvements in your home. In order to qualify, you will need to have equity in your home and have paid off at least 10% of the loan balance. If this sounds like something that would work for you, here are some questions to ask:
-What is my interest rate? -How much can I borrow and how often can I borrow more money? -How much will my monthly payments be? -What are the fees associated with borrowing the money through this type of loan? -What is my repayment period, and what happens if I can’t pay it back on time? -If there is a fixed term, when does the term end and what do I do then? -Can I get cash advances anytime or only during certain times of the year?
-Do all lenders offer all these features? Which ones do we recommend checking out first? Some companies offer rates as low as 3.99%. Others allow you to borrow as little as $5,000 or $10,000 over 30 years so your monthly payments are easier to manage. Make sure you read the fine print before deciding which company is right for you.
Choose wisely
If you have equity in your home and would like to borrow against it, then you may want to consider a home equity line of credit. This type of loan is an unsecured revolving line of credit that allows you to borrow up to 80% (in most cases) or even more, depending on the lender, from your home’s value. The interest rate is typically lower than on most other types of loans because there is no collateral involved.
If you are approved for a home equity line of credit and decide to use it, make sure you follow these six steps The first thing to do is set aside enough cash flow to cover all payments. Your payment will be made monthly with either equal installments over the entire length of the loan or gradually increasing ones if you want to reduce your monthly obligation as soon as possible.
Next, you’ll need to understand how much of your monthly payment will go towards paying off principal versus interest. Generally speaking, if you’re using a HELOC with 10-year repayment period and 10% APR, only about 2/3 of each payment will go towards paying down principal while 1/4 goes toward covering accrued interest. That means that at the end of one year only about 5-6% of your original balance will be paid off which might not seem like much but can add up quickly over time!
