December 07, 2020
A HELOC — Home Equity Line of Credit — is revolving credit based upon the equity you have in your home. There are lots of benefits to having extra access to cash, and a HELOC can be a great tool to leverage the equity in your home with a good interest rate. Here is a list of some of those benefits:
- Closing Costs. Depending on the lender and your financial situation, there may be no closing costs at all. This is especially true if you have strong credit.
- Low Interest Rates. With a HELOC, you are using the value of your home as collateral. You are more likely to get an attractive interest rate compared with other loan options because of this. It is important to keep in mind that a HELOC is typically an adjustable line of credit and rates can increase over time.
- No Restrictions. You don’t need to outline how you’re planning to use your HELOC funds like many other loan options. However, it’s important to continue being financially responsible at all times.
- Potential Tax Advantages. Be sure to check with your tax advisor regarding the current rules, but there are potential tax advantages to using a HELOC because it is a type of product. This is a great option if you are upgrading your home over time and putting the money back into your home.
- No Usage Fees. Most lenders don’t charge a usage fee, which is a fee to access your money. Some lenders have minimums, so it’s important to check with your lender to determine if any HELOC fees may be involved.
- Repayment Options. With a HELOC, you may be able to adjust your payment schedules as necessary. It’s possible to reduce your payment to interest only for a period of time and then pay off the balance when you are more financially secure. Not all lenders allow this. If they do, it would be agreed upon in the disclosures provided within the application and account opening.
- Caps on Rate Increases. HELOCs are set with variable interest rates that can fluctuate with the market. A HELOC will have caps in place that set limits for how much the rate may increase — on the life of the loan or per year.
- Flexibility with Funds. With a typical loan — even a home equity loan — you get the funds in one lump sum. With a HELOC, you can access the funds as you need them, and you’ll only pay principal and interest on what you’ve borrowed. This can be extremely helpful for things like higher education, when you know you don’t really need all the funds up front but will spread out your needs over a few years.
- Cash Emergency Fund. Since you are leveraging your equity and can pull money from your HELOC as you need it, knowing that you have access to cash in case of emergency leads to peace of mind.
- Home Improvements. One of the best uses of a HELOC is for home improvements. You can make upgrades to your home — appliances, windows, renovations — over time and only borrow when you need it. This allows you to use the equity in your home to build more equity by increasing its value.
To learn more about HELOCs contact PenFed:
- Call 866-386-7254
- Visit the Mortgage Center