Boost Your Finances with a Home Equity Line of Credit
Preliminary data for the 2020 holiday season suggests overall spending increased by 5.2 percent, a slight increase from the projected 3.2 percent. If you've overspent this holiday season, a home equity line of credit (HELOC) is a terrific tool to help you get your finances back on track for 2021. Here's what you need to know about using a HELOC.
Common Questions About Using a Home Equity Line of Credit
What Is a Home Equity Line of Credit?
A HELOC is a financial product that allows you to borrow against the equity in your home. Your home's equity refers to the difference in your home's value and the amount of your mortgage. For example, if you owe $150,000 on your home's mortgage and your home is valued at $250,000, your home has $100,000 in equity you can borrow against. Since a HELOC is secured by your home, it has a low, affordable interest rate.
How Much Can I Borrow with a HELOC?
The amount you can borrow with a home equity line of credit depends on your lender's criteria and your specific information. Most lenders allow you to borrow up to 80 or 85 percent of your home's value if you have a solid credit score and verifiable income. With a home worth $250,000, this means 80 percent of your home's value is $200,000. If you owe $150,000, this means you can borrow $50,000.
How Can I Use a HELOC?
A home equity line of credit works a little differently than other loan products. Your lender will establish a line of credit that you can draw on as needed to meet your financial needs. For example, if you need $1,000 to cover your holiday expenses, you would take a draw from your home equity line of credit. Or, if you need $5,000 for home improvements, you would take a draw for this amount.
The draw period for your line of credit varies based on the terms of your HELOC. During the draw period, you will typically only pay the interest on the amount you borrow. Once the draw period is over, you begin paying the amount you've borrowed in full. This means your payments will increase to include principal and interest.
One of the advantages of a home equity line of credit is there are no limitations as to how you use the money. Here are some ideas for using your HELOC draw:
- Pay for a getaway
- Cover tuition or room and board
- Pay for unanticipated house or car repairs
- Pay off high-interest debt
- Pay expensive medical bills
- Cover shortfalls in your budget
Maybe you don't necessarily have a specific reason to use your home equity line of credit but would prefer a little more money in your bank account. It's fine to take a draw, even if you don't have an immediate need for the money. Contact us at 702-228-2228 to learn more.