What the heck is a HELOC?
Don’t be intimidated by the thought of a home equity loan or line of credit. They’re not as scary as they might sound, and having one could be very helpful when you have a large expense coming up. If you’re remodeling, buying your dream car, paying for college or consolidating debt, the possibilities are endless. You just have to know a few key things, then you can put the value of your home to work!
So, what is home equity?
Home equity is the value you have invested in your home. You could also think of it as the value of the house, minus your mortgage balance. With each mortgage payment you make, your home equity goes up. So if you just bought a $300,000 home and you put down $60,000, your home equity is $60,000, because that’s what you’ve paid so far.
OK, so what’s a home equity loan?
A home equity loan is when you take out a loan using your house as collateral. You can do this with a home equity loan or a home equity line of credit (HELOC). Which one you choose depends upon what your financial needs are.
Home equity loan vs. HELOC
A home equity loan is what some people call a second mortgage. It’s a fixed amount and a fixed rate — a one-time deal. So if you decide you want to redo the upstairs bathroom and you know you need $10,000 to do it, you can borrow exactly that and pay it back at steady intervals.
A HELOC is a little different. This one is flexible — it’s a credit line you can draw on. You can keep the balance at zero, or borrow money when you need it for as long as you need it. Maybe you’ve decided you want to redo the upstairs bathroom, but after that, you’ll turn your remodeling eye to the front porch. Perhaps you didn’t manage to save as much as you wanted for that dream wedding and need to tap into other available resources. Use it for whatever you want; the possibilities are endless! A HELOC will enable you to borrow with more flexibility so that financing remodeling projects is less daunting.
Interested? Check out our rates for home equity loans and HELOCS and start planning your next project!