3 things to consider before getting a home equity line of credit
A home equity line of credit, or HELOC, is a loan that uses your home equity as collateral. You can usually borrow up to 85% of your home's value, minus any outstanding mortgage balance. But there are a few things to consider before you apply for a HELOC.
1. How much can you afford to repay?
With a HELOC, you only have to make interest payments for the first 10 years. After that, the entire loan becomes due. So it's important to make sure you can afford the monthly payments, especially after the 10-year interest-only period ends.
2. What is your home worth?
Your home equity is the portion of your home's value that you own outright, minus any outstanding mortgage balance. So if your home is worth $250,000 and you have a $200,000 mortgage balance, you have $50,000 in home equity. Keep in mind that your home's value may have changed since you purchased it, and it could change again in the future.
3. What are the loan terms?
HELOCs typically have variable interest rates, which means your monthly payments could go up or down over time. And as we mentioned before, the entire loan becomes due after 10 years. So it's important to understand all the terms and conditions before you apply for a HELOC.