A home equity line of credit (HELOC) is a type of loan you can get on your house if you have equity in your home. This type of loan is different from a home equity loan in one main way, and this difference offers advantages to you when you need cash.
The Main Difference
The main difference between a regular home equity loan and a HELOC is that a home equity loan is a one-time lump sum loan that requires regular payments. A HELOC, on the other hand, is a line of credit, similar to a credit card. This one difference makes a HELOC ideal if you experience times when you need cash to pay for things.
The Advantages of a HELOC
One of the key advantages of a HELOC over a regular home equity loan is the flexibility it offers. When you apply for a HELOC and get approved, your lender gives you a credit line up to a certain amount. This might be $10,000 or it could be a lot more than this. It depends on the amount of equity you have in your home and on your credit.
Once you get approved, you are not required to borrow the money from the credit line, but you are free to borrow money when you need it. The flexible part in it is that you can borrow however much you would like, and you are not required to borrow all of it.
In other words, if you have a $20,000 HELOC, you could borrow $5,000 if you need to pay for your vacation. A few months later, you could borrow an additional amount if needed, as long as you do not go over the $20,000 limit.
This flexibility is beneficial because you will only pay the interest on the amount you borrowed. In addition, you can typically write off the interest you pay on your taxes as an expense. This can lower your tax bill, and it does not typically matter what you spent the money on.
The other advantage of a HELOC is you can avoid paying a cash advance fee like you would normally pay if you had to borrow money from a credit card.
How to Qualify for a HELOC
If you are interested in getting a HELOC, contact a mortgage lender to apply. When you apply, the lender will probably want to complete an appraisal of your home to determine how much equity you have in it. In addition, your lender will pull your credit report to make sure your credit meets their standards. To learn more, contact a bank or credit union like Rio Grande Credit Union.