What is a Home Equity Line of Credit?
A home equity line of credit (HELOC) is a loan in the form of a line of credit secured by the equity in your home. A HELOC or home equity line of credit is a loan set up for a draw, which allows you to take out portions of the total loan amount at your convenience, rather than using the entire loan amount like a traditional mortgage. You can use the funds from the HELOC at the time of your choosing.
What is the Meaning of Equity?
Equity is the difference between the amount owed on your mortgage and market value of the home. Equity increases over time as you pay down your mortgage. Equity can also increase as the appraised property value increases.
Why Should I Get a HELOC?
For many people, your home is your greatest asset. As you pay off your mortgage, your equity increases in your home. A HELOC allows you to access this equity tied to your home and use it for a variety of financial goals such as paying off debt, paying for education, renovating your home, buying a property and much more. You can also use a HELOC at the time of home purchase for anticipated home repairs and to increase your overall loan to value.
Rates on a HELOC are usually higher than traditional first mortgages and are limited to around 75% of your home’s value. Additionally, HELOCs are only offered with adjustable interest rate mortgages (ARMs) rather than fixed rates.