A home equity loan or home equity line of credit a.k.a HELOC is a method of borrowing against the equity in your home, typically, the loan will be repaid with monthly installments that take out a portion of the increase in value that occurs while you’re paying it back.
This means that you can borrow from the equity in your home without any additional debt, which can be very appealing for some people. It also means that you can borrow up to about 35% of the value of the home, depending on certain factors.
Home equity loans are great for large purchases or improvements that require a large amount of money but that would take years to pay for or for which a large down payment is required.
Home equity lines of credit work well for people who want to make smaller purchases that don’t require a large amount of money upfront.
How a HELOC Works
With a HELOC, you take out a line of credit with your bank or other lending institution, this line of credit allows you to borrow up to a specified dollar amount, depending on your lender, you could be able to borrow up to 35% of the value of your house or less.
Once you have this line of credit, you can use it to make purchases that you would normally pay with cash. Alternatively, you could take out a heloc to pay off some of your current bills, such as your credit card debt, car loan, or another installment loan.
You could also use the line of credit to make home improvements that increase the value of your home, home equity loans and lines of credit are often useful for people who want to make large-scale purchases that require a large investment but that wouldn’t otherwise be financially feasible.
A HELOC is a great way to make improvements to your home that increase its value and help you sell it for a higher price down the road. The biggest downside to a HELOC is that you will have to pay interest on this line of credit, so it’s important to be careful about how and when you use it.
Get a Home Equity Loan or Line of Credit?
To get a home equity loan or line of credit, you first need to find a lender, home equity loans are generally available through your bank, and some credit unions may offer them as well.
Lenders typically charge a fee of between 1 and 4% of the amount borrowed, depending on your lender, they may also impose an interest rate.
A HELOC, on the other hand, is usually less common than a home equity loan and more difficult to obtain, you can usually only get a home equity line of credit from a credit union or a private lender.
There are many things to keep in mind when applying for a home equity loan or line of credit, so be sure to do your research ahead of time so that you don’t end up making any mistakes. A HELOC comes with a number of advantages that make it worth the extra trouble.
The biggest advantage is that you can borrow up to 35% of the value of your home without incurring any additional debt, this means that you can borrow up to $350,000 without paying back $500,000.