A home equity line of credit (HELOC) may be the best way to get money from the equity in your home for that project or expense you have. It gives you a lot of options that other equity loans don't, as well as the freedom to choose some of them. Here's how to get the most out of a home equity line of credit.
Most of the time, a home equity line of credit is a second mortgage, so it will add another payment to your monthly bills. This means you should be careful with how much money you borrow. Because of this, you should figure out how much you can pay each month so that it won't be hard to find the money each month. You shouldn't always let a lender decide for you, since they can't lose whether you pay or not. There may or may not be closing costs, but since many lenders don't charge much to close on a HELOC, you should shop around to find one that doesn't.
Once you are approved for the loan, an account with a credit limit will be set up for you. Either a credit card or a chequebook will be given to you that lets you access the money. When you get a home equity line of credit from a lender, many of them will require you to make a withdrawal right away, and some will also require that each withdrawal after that be at least a certain amount.
With a home equity line of credit, you can get as much or as little money as you need, whenever you need it. There is also a "draw period," which is a time during which you can take money out. Depending on the terms of your home equity line of credit, this could take up to about 11 years.
During the draw period, you'll have to pay interest on the money you've already used. Most likely, the interest you will have to pay will be calculated every day so that it keeps up with the money you take out. You should know, though, that unless you choose to do something different, you are only paying the interest. This means that you will have to pay back the full amount of the loan during the amortisation period or as a lump sum at the end of the draw period. If you can, you may also want to pay down some of the principal so that you can pay less in the future. But you should check with the lender to make sure there is no penalty for paying off the loan early.
You may also have to pay fees for your HELOC. Some lenders will charge a fee to keep your account open. This could lead to a charge every month, every year, or both. There may also be a fee for each withdrawal, and there may even be a fee if nothing is done with the account. Since a lender only gets paid when you take money out of a HELOC, they don't want to see their money sitting there not being used and not making them any money. But if you look around, you might be able to find a home equity line of credit that doesn't have all of these fees.
