Whether you want to fix a new house or spruce up your forever home, renovation projects can quickly add up. But there are financial services your bank offers that can help make your dream space a reality without breaking into your savings.
What is a HELOC?
HELOC is an acronym for Home Equity Line of Credit. HELOCs allow you to draw funds whenever needed and repay what you borrow with an Adjustable Rate Mortgage, which means it’s a mortgage with a variable interest rate. A variable interest rate means your interest rate grows over time instead of being locked into one interest rate for a borrowing period. That’s why HELOCs typically have lower interest rates than personal loans.
HELOCs are designed to maximize your house equity to increase its value. They’re best used for ongoing home projects, like kitchen renovations.
How do they work?
A Home Equity Line of Credit is a loan that borrows against your home’s equity to access cash reserves for your home. Equity is your home’s value minus the amount you owe on your primary mortgage.
This means that instead of taking out unsecured debt with a higher interest, like when you use a credit card, it’s a secure line of credit. It’s taking out a mortgage against your property value.
You can also take out a HELOC if you do not have a mortgage, meaning your HELOC would become your primary mortgage.
When you have access to a HELOC, you can draw credit and repay all or some of it monthly.
Why are they beneficial?
The most practical aspect of HELOCs is that they’re flexible for borrowing and paying back.
Let’s say you take out a $20,000 HELOC for a home improvement, and you know that a project with be $5,000. That gives you a lot of room in case an expected expense arises in your project, or you want to use it for something else during your term.
You can also make interest-only payments. At Bank Midwest, our HELOCs are on a 10-year term. So let’s say in those ten years, your furnace goes out. You have funds available to get that fixed.
Are you ready to make your house value work for you? Learn more about how to make your dream home with our Dream, Plan, Live episode, “Did You Buy A Haunted House?”.