Home Equity Lines Of Credit (HELOCs)

What You Need to Know About Home Equity Lines of Credit (HELOCs)

A home equity line of credit (HELOC) is a loan that uses your home’s value as collateral. HELOCs are different from home equity loans (HELs). With a HELOC, you’re approved for a line of credit up to a certain amount, and you can draw on that line of credit for a set period of time, usually 10 years. During the “draw period” you only need to make interest payments. After the draw period ends, you enter the “repayment period” and will need to start paying back both the principal and interest.

There are several things to consider before taking out a HELOC, including:

Your home’s value: To qualify for a HELOC, your home must have enough equity built up in it. Equity is the portion of your home’s value that you own outright, without any outstanding loans or lines of credit against it.

Your credit score and history: Lenders will pull your credit report and score to get an idea of your financial history and ability to repay the loan.

Your income and debts: Lenders will also consider your income and debts when determining whether or not you can afford a HELOC.

The prime rate: The prime rate is the interest rate that banks charge their most qualified customers. HELOC rates are based on the prime rate, plus a margin. So, if the prime rate is 3% and your margin is 2%, your HELOC rate would be 5%.

Closing costs: There are typically closing costs associated with taking out a HELOC. These can include appraisal fees, origination fees, and title insurance fees, among others.

Your credit score and history: Lenders will pull your credit report and score to get an idea of your financial history and ability to repay the loan.

Your income and debts: Lenders will also consider your income and debts when determining whether or not you can afford a HELOC.

Home Equity Lines Of Credit (HELOCs)

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