Understanding HELOCs: Unlock Your Home’s Hidden Potential
Understanding HELOCs: Unlock Your Home’s Hidden Potential
As the weather warms up, you may see more and more financial institutions talking about HELOCs (pronounced as “He Locks”) which is an initialization of “Home Equity Line of Credit”, usually appearing alongside some photos of DIYers tackling a home painting job or putting up a fence or other improvement project. But what is a HELOC? In simple terms, you apply for one, using your home’s value as collateral, and if approved, an institution offers you line of credit, money that you can draw off of instead of a lump-sum.
Unlike a traditional home equity loan, a HELOC can be drawn from and repaid with interest only being charged on the amount you withdraw. You have access to these funds repeatedly, so long as they are repaid on schedule. In some instances, the interest paid on a HELOC is tax-deductible as well up to a certain amount, but please consult a tax code professional for advice on this!
The reason HELOCs are advertised in the spring and summer seasons is that they are most used for home improvement projects, statistically. However, they can be used for anything, really. Once-in-a-lifetime vacations, debt consolidation, emergency funds, weddings, and business capital are often purposeful enough to apply for one.
Why choose a credit union instead of a bank for your HELOC? Credit unions are local organizations, not-for-profit, who specialize in helping our community get the information and assistance needed to grow their wealth. By choosing a credit union, you’re choosing a lower interest rate, typically, over a bank’s offerings. Of course, special offers may be tempting but do your homework and check out multiple sources before committing to an institution.
So, what are the next steps? Check your credit score! Like any form of credit, your financial reputation has a big impact on your creditworthiness to lenders. You can get a free credit report from all three major credit bureaus once a year through AnnualCreditReport.com, then make sure to do your credit repairs, if any. After you’re sure your credit Is good to go, start your shopping for the rate that works for you. Then, give us a call or schedule an appointment with our loan officers online to determine the best path forward. A HELOC uses your home as collateral, so an appraisal may have to be scheduled prior to your limit being set, and make sure to note any improvements you’ve made since the last home valuation was completed.
When your loan is agreed upon, signed, and closed, you can use your loan account to pay for whatever you need per the terms of the agreement. Then you just need to repay it on schedule.
Here’s the nitty-gritty of it, though: failure to pay, just like any loan or line of credit, will negatively affect your credit score, add on further fees, and should it get far enough, as your home is collateral on this loan, the extreme measure of unpayment is foreclosure on your home. Your financial institution will do what they can to help, if necessary, but please reach out for help BEFORE it becomes an issue.
Want to learn more? Stop in, or schedule an appointment with our loan department to find out what you need to get started!
