Home Equity Line

of Credit (HELOC)

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Tap Into Your Home's Equity

A Home Equity Line of Credit (HELOC) is a second mortgage that allows homeowners to borrow against their home's equity. Like a credit card, funds can be accessed as needed and repaid over time. Lenders typically offer up to 85% of your home's value, with a draw period of up to 10 years followed by a repayment period.

Key Benefits

Flexible Borrowing

Borrow as needed during the draw period, similar to a credit card.

Lower Interest Rates

Generally offers lower interest rates compared to unsecured loans or credit cards.

Potential Tax Benefits

Interest may be tax-deductible when used for home improvements (consult a tax advisor).

Large Borrowing Capacity

Access to a significant amount of funds based on your home's equity.

HELOC Information

A Home Equity Line of Credit (HELOC) allows you to borrow against your home's equity, providing flexibility for major expenses. To better understand how a HELOC can fit into your financial plans, you can start by speaking to one of our seasoned experts.

How HELOCs Work

HELOCs have two phases:

Draw Period: Typically 10 years, during which you can borrow funds up to your credit limit.
Repayment Period: Usually 20 years, where you can no longer borrow and must repay the principal and interest.

HELOC Requirements

Credit Score: Generally 620 or higher
Debt-to-Income Ratio: Typically 40% or less
Home Value: Should be at least 15% higher than the amount you owe
Equity: Typically, you can borrow up to 85% of your home's value minus the amount you owe

Accessing Your HELOC

You can access your HELOC funds through:

Online transfers
ATM card
Point-of-Sale (POS) card
Checks (if issued by the lender)

Pros and Cons of HELOCs

Understanding the advantages and disadvantages of a HELOC can help you make an informed decision.

Pros

Flexibility to use funds for various purposes
Lower interest rates compared to unsecured loans
Potential tax deductions for home improvements
Only pay interest on the amount borrowed
Access to a large amount of credit

Cons

Risk of foreclosure if unable to repay
Variable interest rates can lead to higher payments
Potential for overborrowing
Additional costs like annual fees and closing costs
Reduces home equity

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HELOC FAQs

Everything you need to know about Home Equity Lines of Credit

How is a HELOC home equity line of credit paid back?

HELOCs are typically paid back in two phases:

Draw Period:
- Usually lasts 5-10 years
- You can borrow money up to your credit limit
- Monthly payments are typically interest-only, though you can pay principal if you choose
Repayment Period:
- Typically lasts 10-20 years
- You can no longer borrow money
- You must pay back both principal and interest
- Payments are often higher than during the draw period

The specific terms can vary by lender, so it's important to understand your HELOC's repayment structure before borrowing.

Is the HELOC interest tax-deductible?

HELOC interest may be tax-deductible, but there are specific rules:

Interest is only deductible if the HELOC is used to buy, build, or substantially improve the home that secures the loan.
The total amount of home loans (including your first mortgage and HELOC) must not exceed $750,000 for single or married filing jointly, or $375,000 for married filing separately.
You must itemize deductions on your tax return to claim this deduction.

It's important to consult with a tax professional for advice specific to your situation, as tax laws can change and individual circumstances vary.

Does a HELOC impact the credit score?

A HELOC can impact your credit score in several ways:

Credit Inquiry: Applying for a HELOC results in a hard inquiry on your credit report, which may temporarily lower your score slightly.
Credit Utilization: Some credit bureaus treat HELOCs like installment loans rather than revolving credit. This means using your entire HELOC limit may not have the same negative impact as maxing out a credit card.
Payment History: Making on-time payments can positively impact your credit score over time.
Credit Mix: Adding a HELOC to your credit profile can improve your credit mix, which can positively affect your score.

Overall, responsible use of a HELOC can have a neutral to positive effect on your credit score in the long term.

How much can I borrow with a HELOC?

The amount you can borrow with a HELOC depends on several factors:

Your home's current market value
The amount you still owe on your mortgage
Your credit score and income
The lender's policies

Typically, lenders allow you to borrow up to 85% of your home's value, minus what you owe on your mortgage. For example:

If your home is worth $300,000
And you owe $200,000 on your mortgage
85% of your home's value is $255,000
Subtracting your mortgage balance: $255,000 - $200,000 = $55,000
In this scenario, you might be eligible for a HELOC of up to $55,000

Remember, this is a simplified example. Your actual borrowing limit will depend on the factors mentioned above. For a personalized estimate, speak with one of our mortgage experts.

Access your home's equity with a flexible HELOC.

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