Understanding Home Equity Lines of Credit (HELOCs)

A home equity line of credit, also known as a HELOC, is a huge asset for homeowners. HELOCs are a powerful tool that allow homeowners to liquefy the equity of their home. Once you understand what a HELOC is and how you can benefit from it, you can begin to take control of your assets to meet other needs. 

What is a HELOC?

As a home line of credit, a HELOC allows people with home equity (typically at least 15% of their home’s mortgage loan paid) to draw from their equity over long periods of time, using their home as collateral. A HELOC is meant to have a long-term draw period over many years where you can draw as little or as much as you need each month.

How Does a HELOC Work?

Your credit limit is the amount of equity you have in your home. Similar to a traditional credit card, your limit will increase again as you repay the credit. After your first draw, you will begin to have a minimum payment amount that includes both a principal amount and interest. If still paying on your first home loan, this will be a separate, additional monthly cost.

How Should I Use a HELOC?

HELOCs are ideal for people needing access to smaller amounts of money over a long period of time. They are especially helpful for homeowners looking to reinvest money into their home through long-term renovation projects, in turn increasing their home’s value. 

Borrowers are not restricted to specific uses of these funds but often tend to use their HELOC for things like vehicle down payments, education expenses, debt repayment, or medical expenses.

How to Qualify for a HELOC

Like a first house mortgage, you’ll need to qualify for a HELOC. Lenders will need to consider factors including credit history, employment history, income, debt, etc. 

Note that there can be fees associated with HELOCs, including closing costs, application fees, annual fees, and/or early closure costs. Be sure to consult with your mortgage lender to understand if any of these fees apply to your HELOC. 

Additionally, borrowers may have the option to choose between fixed-rate and variable-rate interest amounts. You will need to consult with your lender to determine what is available and will work best for you. 

Loan Guidance Specialists 

If you have questions about home equity lines of credit or would like to start your application, get in touch with your local mortgage lenders at Coastal Custom Mortgage today. Our team works with clients to provide customized solutions based on their individual needs.