What is HELOC?
HELOC, or Home Equity Lines of Credit, can turn your home value into cash as needed. It usually allows you to turn up to about 85% of your home’s value minus the balance remaining on your home mortgage.
Say you have a $500,000 home with a balance of $300,000 on your first mortgage and your lender is allowing you to access up to 85% of your home’s equity. You can establish a HELOC with up to a $125,000 limit:
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$500,000 x 85% = $425,000
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$425,000 – $300,000 = $125,000, your maximum line of credit limit
Reasons to get a home equity line of credit
A HELOC is best used for home repairs and upgrades. While it’s tempting to tap the easy-as-using-a-debit-card convenience of a HELOC for all sorts of things — a vacation, a new car, whatever — those splurges aren’t wealth-building uses of your home’s value and may put you at risk of losing the house if you default on the loan.
A bonus: The interest on your HELOC may be tax-deductible if you use the money to buy, build or substantially improve your home, according to the IRS.
“Home equity loans are usually issued with a fixed interest rate. ”
Home equity loan vs. HELOC
While a HELOC behaves like a revolving line of credit, letting you tap your home’s value in just the amount you need as you need it, a home equity loan provides a lump-sum withdrawal that’s paid back in installments.
Home equity loans are usually issued with a fixed interest rate. This can save you future payment shocks if interest rates are rising. Work with your lender to decide which option is best for your financing needs.
Next-steps
Ccino's banking partner offer a wide range of HELOC options. If you are interested in getting one, please email us at [email protected] to learn more.
