If you have lived in your home for a while, you have probably built up some equity in it. When you make regular payments on your mortgage and the value of your home goes up over time, your equity grows. This is especially true if you have kept the house in good shape and kept up with repairs. With a home equity line of credit, you can borrow against the value of your home and use the money to make some of your dreams come true. Here are some ways to do it.
There are different ways to get access to the equity in your home, but a home equity line of credit, or HELOC, may be your best choice. One reason is that you can use the money in equity, but you don't pay interest on it until you actually take it out and use it. When you first apply, you are given a credit limit that tells you how much money you can borrow. You can then use a credit card or checking account to get to the money.
You also have a certain amount of time to take money out of the account. This means that you can only use the money in your home equity line of credit for a certain amount of time, which could be up to 11 years.
During the draw period, every day is used to figure out how much interest you have to pay (usually). Usually, a 30-year time frame is used to figure out the total length of time, which includes both the draw period and the payment period. As you take out money, you only pay interest on the amount you've used.
A HELOC can be useful if you have enough money for a number of projects but don't know how much you will need for each one. You can use the money to take that trip or cruise you've always wanted to Bermuda, Alaska, Europe, or somewhere else. You can also use it to fix up or add to your home, pay for college, buy a car, consolidate your debt, or pay for some medical bills.
You do need to know how the loan will be paid back. At the end of the draw period, some lenders will ask for a single payment for the whole amount. This means you will have to refinance it. Others will just figure out how much cash you used and then figure out your payments for the payment period. This usually pays off the home equity line of credit mortgage in full.
Most HELOCs don't have any closing costs. But you do need to know about the margin, which is a percentage of interest on top of the APR. It won't go away and could cause your loan interest to go up by twice as much. Compare the fees, interest rates, length of time to pay back, and other features to find the best deal. Then, enjoy your equity and your hopes and wishes.
