HELOC

How A HELOC WORKS  -With a HELOC, you’re borrowing against the available equity in your home and the house is used as collateral for the line of credit. As you repay your outstanding balance, the amount of available credit is replenished – much like a credit card. This means you can borrow against it again if you need to, and you can borrow as little or as much as you need throughout your draw period (typically 10 years) up to the credit limit you establish at closing. At the end of the draw period, the repayment period  (typically 20 years) begins.

Standalone home equity line of credit 
ACCESS YOU HOME EQUITY WITHOUT REFINANCING
You could tap into your home equity with a cash-out refinance. But what if you already have a low interest rate on your mortgage? Consider getting a home equity line of credit (HELOC) instead. With a HELOC, you can hold onto your low mortgage rate and still access funds to pay for tuition, home renovations, high-interest credit cards, or personal loans.
Key benefits: • Withdraw HELOC funds as needed • Multiple draws available • Line amounts of $10,000-$500,000  • Minimum 640 FICO score • Flexible payment options

Qualifying for a heloc -To qualify for a heloc, you need to have available equity in your home, meaning that the amount you owe on your home must be less than the value of your home. you can typically borrow up to 90% of the value of your home minus the amount that you owe. Also, your credit score and history, employment history, monthly income and monthly debts are also considered when you apply for a heloc. 

Variable Interest rate option -When you have a variable interest rate on your home equity line of credit, the rate can change from month to month. The variable rate is calculated from both an index and a margin. An index is a financial indicator used by banks to set rates on many consumer loan products. most banks, use the U.S. Prime Rate as published in The Wall Street Journal as the index for HELOCs. The index, and consequently the HELOC interest rate, can move up or down. The other component of a variable interest rate is a margin, which is added to the index. the margin is constant througout the life of the line of credit. As you withdraw money from your HELOC, you'll recieve monthly bills with minimum payments that include principal and interest. payments may change based on your balance and interest rate fluctuations, and may also change if you make additional principal payments. making additional principal payments when you can will help you save on the interest you're charged and help you reduce your overall debt more quickly. 

Fixed Rate Option -fixed rate options are also available. Interest rates are determined by loan components through AI technology. Borrowers may be offered several rate options based on requested loan amount & inital draw term. interest rates are fixed with no interest-only period; payments are full amortized. a full draw is required at closing, no prepayment penalty applies, 100% maximum redraw available (based on intial credit line) in minimum increments of $500. draw period of 5, 4, 3 or 2 years, depending on initial term (30, 15, 10, or 5 years, respectively) 

Is a home equity line of credit right for me? 
If you are approved for a home equity line of credit, a lender extends you a line of credit for a set number of years. You can borrow money up to your credit limit for the first period of the loan—typically 10 years—while you make at least the minimum monthly payments. When your borrowing period ends, you must repay the loan in full, usually over a 20-year period. An important benefit of a home equity line of credit is that its interest rate is usually much lower than other types of credit. However, you should consider the risk that if you default on your payments, the lender could foreclose on your home. Borrowing against home equity isn't right for everyone and every situation: Make sure you understand both the benefits and potential risks.

Here are five ways homeowners commonly use HELOCs.
1. Improve and upgrade your home



Improving your home through additions, repairs and renovations may help you keep pace with your changing needs. Some home improvements, such as adding livable square footage or updating an outdated kitchen or bathroom, might also increase the property's value. Energy-efficient upgrades can lower your utility bills and provide rebates or tax credits. Check the IRS website or consult with a tax advisor for more details.
Tip: Not all upgrades increase your home’s value. It's especially important to think about their costs, how much you're paying in interest and potential impact on your home's worth if you're using a home equity line of credit to pay for them.

2. Access lower interest rates on credit



A home equity line of credit may charge you a lower interest rate than other types of borrowing such as credit cards, car loans and private student loans. According to Bankrate.com, at the end of 2018 the average rate for a variable-rate HELOC was about 5.6 percent, while variable-rate credit cards offered an average interest rate of about 17.6 percent. Additionally, banks often offer introductory rates and discounts on home equity lines of credit. And unlike credit cards, the interest you pay may be tax-deductible if you use the loan to buy, build or substantially improve the home that secures the loan. It's a good idea to consult your tax advisor regarding tax deductibility, as tax rules tend to change.
Tip: While interest rates on home equity lines of credit are generally lower than credit card rates, remember the HELOC is secured by your home, and if you don't make your payments, you could lose your home. Keep in mind that interest rates on HELOCs are generally variable, which means the rate may change at any time, though some banks offer a fixed-rate option for some or all of your balance. For instance, if your line of credit is $100,000 but you only need $20,000 to cover the costs of a kitchen upgrade, you could take that amount out at a fixed rate. Your monthly payments would stay consistent and the interest rate wouldn't change, making it easier to incorporate the debt into your budget. However, the fixed rate is often higher than the variable rate. 

3. Consolidate your debt



Since the interest rate on your home equity line of credit may be lower than those of your other loans, you might consider using it to consolidate your debt. Doing so could help simplify your payments and reduce your interest costs.If you use a HELOC to consolidate debt, you may save on interest if you pay at least as much toward your new, lower-interest-rate loan each month as you paid toward the higher-rate debt. The relative benefits of using a home equity line of credit for debt consolidation depend on individual circumstances.
Tip: If you consolidate credit card debt using a home equity line of credit, you're turning unsecured debt into secured debt, so you want to be confident you can afford the payments. Also, be careful not to run up new debt, such as on newly paid-off credit cards.

4. Help bridge the costs of higher education

If your children are heading to college—or if you're contemplating going back to school—a home equity line of credit can help you manage the costs. You could borrow money through your HELOC to make tuition payments when they're due and then pay the debt off over the set repayment period for your line of credit. 
Tip: It's important to compare HELOC interest rates to student loan interest rates and repayment options. While lower interest rates are usually preferable, it's a good idea to talk to a financial advisor about the best option for your situation.

5. Rethink expensive one-time purchases



Expensive discretionary purchases, such as vacations or an extravagant wedding, are generally not the best reasons to draw on your home equity. Remember that your collateral for your HELOC is the place where you live, your home. Be sure to carefully consider all of the options that might be available to you.

Ready to get started?
complete a guided questionnaire and we will begin to assist you with heloc options available through the Neighborhood Mortgage broker network.