If you are a homeowner, there are several mortgage tools that you can use to access the cash from your home equity. One such tool is a home equity line of credit or HELOC. To understand whether a home equity line of credit is a good option for you, you need to understand what it is and how it works.
What is Home Equity?
Home equity is the value of your home minus what you owe on your mortgage. So for example, if your home is worth $300,000 and you owe $200,000, your home equity is $100,000. Home equity grows both when you pay down the principal on your mortgage and when your home increases in value.
What is a Home Equity Line of Credit?
A home equity line of credit (HELOC) is a secured line of credit that uses your home equity as collateral. It is an amount of money approved by your lender that you can borrow from and pay back as often as you wish providing that you do not exceed your borrowing limit.
Because the line of credit is secured, HELOCs are easier to qualify for that personal unsecured lines of credit. You do not need to have perfect credit in order to get a HELOC – the only real requirement is that you must have sufficient equity in your home.
Once you have been approved for a HELOC, you may borrow any amount of money up to the limit, or you may choose not to borrow right away and save the HELOC for when you do need cash. You will not be charged any interest until you actually take money out of the HELOC. Once you have borrowed money, you will be required to make regular payments with interest.
What Can I Use a Home Equity Line of Credit for?
You can use a HELOC for any purpose that you would use a personal line of credit or credit card for. Since interest rates are generally quite good on HELOCs, people often use them to consolidate high interest debt, pay for large expenses such as home repairs, or for down payments on a vehicle or even on another home.
Is a HELOC a Good Option for Me?
If you have equity in your home, and are looking for a way to borrow cash, then a HELOC may be a good option, but it is recommended that you consult with a mortgage broker to ensure you are getting the best possible rates and terms.
To learn more about home equity lines of credit and other mortgage tools, contact Akal Mortgages today.
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