When you require extra funds, you can use a home equity line of credit (HELOC). With this type of loan, you can get instant access to cash, which comes from your home’s value. The best feature of HELOC is that you pay it in monthly installments, which makes it easier for you.
HELOC is calculated by knowing your home’s value after deducting the amount that you have to pay that you owe from your primary mortgage. Here are five things that you should bring to your knowledge before taking out a HELOC.
How is HELOC More Flexible than Fixed Home Loan?
HELOC is a great way when you want to pay for things like home improvement and education. HELOC is like a credit card, and you can take it out as long as you have credit available.
Here are some reasons why the Home Equity Line of Credit is more flexible:
- You can get the option of “interest-only” payments.
- Your bank may allow you to convert the HELOC to a fixed loan.
- You can get your hands on a line of credit for the borrower whenever it’s needed.
- You can get HELOC for a lower rate than for a fixed home equity loan.
How Does HELOC Work?
The features of your HELOC resemble the credit card in some ways. You can spend the amount against your spending limit, and you can get a specific amount against your home equity. Even after you repay your HELOC debt, you can spend some extra amount of money.
You can access different interest rates according to your situation. If there are any fluctuations in the baseline interest rates, it can influence the interest rates of your HELOC. Your interest rate can be calculated using your index rate and then adding markups according to your credit profile.
How Can You Get a HELOC Loan?
To obtain a HELOC loan, you have to provide your documents and show that you are creditworthy. After having sufficient equity, you can start looking for lenders to obtain a home equity line of credit. Get your disclosure documents after completing your application process.
Make sure to read the details and questions on the disclosure documents to choose according to your terms. In some cases, it may be best to open an account with another bank that will allow you the best interest rates. Sometimes the underwriting process may take some weeks to get completed.
How to Pay Back Your HELOC
Firstly, you have to go through the Draw Period in which you can get loans by checks or transfers. Your amount is usually received on your credit card. When it comes to paying back, you can do it in monthly installments plus the interest amount.
When your next repayment period arises, you have to pay for premium and interest in monthly installments. If you cannot pay in the Repayment Period, you will have to repay the sum in the account in the end.
Reasons Why People Use HELOC
Here are some reasons why you can take out a HELOC.
Cover an Unexpected Expense
You may face certain unexpected incidents where you require plenty of money. You may need a new furnace or an air conditioner. Any of your family members have fallen sick and need immediate medical treatments that cost a lot. A HELOC is a much better option than a credit card with high-interest rates.
To Make Your Debt More Manageable
Pay the debt of your credit card debt with the use of HELOC. You can benefit in the sense that you can transfer the amount to a line of credit with a lower interest rate.
You can take out a HELOC to make significant home improvements to increase the value of your home. Update the whole house or any of your rooms.