Oct 02, 2017 / Home Equity
A home equity line of credit (HELOC) can be a great way to borrow money, but as with any loan it’s important to understand what you’re getting into, and exactly how you plan to spend the money. Here are a few things you should know about a HELOC.
A HELOC is different than a traditional lump sum loan, in that it gives homeowners access to funds (a line of credit, not unlike a credit card) up to a certain credit limit, with one important difference – a HELOC uses the borrower’s home as collateral.
One of the best features of a HELOC is that you can choose to withdraw as little or as much money as you need, up to your credit limit. Of course, your monthly payment will change depending on several factors, including your interest payment and the amount withdrawn, but a HELOC provides a flexible way to borrow money as you need it.
Because a HELOC allows you to borrow money against your home’s value, your line of credit will depend on several factors, including your home’s appraised value, the remaining balance on your existing mortgage, and your credit history. Because your home could be at risk if you fail to make payments, it’s best to borrow cautiously, withdrawing cash periodically on an as-needed basis. Also, it’s important to remember that HELOCs traditionally come with variable interest rates, which means your rate will rise and fall with baseline rates.
Most people wonder what they can use a home equity line of credit for. While there’s not just one right answer, the general rule of borrowing money is to use the loan for things that will build wealth, such as home repairs and remodels. That’s not to say you can’t use a HELOC for weddings, vacations, and even to consolidate debt, but remember your house is at stake, so withdraw wisely. A HELOC can also be a good option if you plan to borrow smaller amounts over a longer period of time, just remember to weigh the benefits of borrowing money against the costs of closing a loan, which may include application, appraisal, and title fees.
If you’re ready to apply for a loan, and you feel a HELOC meets your specific borrowing needs, reach out to a loan adviser at Utah First Credit Union at 800-234-0729 or visit utahfirst.com.