People borrow money for various reasons, and it’s important to be aware of the available options, especially during emergencies. One such option is a HELOC.
A HELOC allows homeowners to borrow money from the equity built up in their home. There are many things you need to know about HELOC rates so, if this concept is relatively new, here’s what you should know about home equity lines of credit.
What Is HELOC?
As mentioned, a HELOC, or home equity line of credit, is a type of mortgage option in that it is tied to your home. It can be used for anything such as house renovations, consolidating high-interest-rate debts like credit card balances, college expenses and more. It is a line of credit with a variable rate which can fluctuate over time, often based on shifting market conditions.
How Does a HELOC Work?
The borrower can withdraw funds during the draw period, typically 5-10 years, and repay them with interest over the repayment period. During the draw period the available credit replenishes as the borrower pays back the borrowed amount, offering a revolving credit line for future borrowing. Minimum required payments are typically only for the interest on the money you borrowed, but it’s smart to pay more than that so there is more available credit when it’s needed.
After the draw period ends, the repayment period begins. During this phase, funds can no longer be withdrawn from the line of credit, and repayment of both the principal and interest on the outstanding balance begins. The payment period typically lasts for a specific number of years, often 10 to 20 years, depending on the terms of the HELOC.
What Are the Qualifications To Qualify for HELOC?
The most important thing is that your home has sufficient equity. This is determined by subtracting the loans secured by your house from its appraised value. After that, normal crediting criteria apply, such as a consistent source of income and a good credit score.
Once you have determined the amount of equity, prepare all the necessary documentation, like paycheck stubs, mortgage and property tax statements, and property tax, and any other documents your lender requests.
Talk to a Loan Expert Today
At Heartland Credit Union, we have a team of loan experts who can provide guidance, particularly when it comes to HELOCs. Don’t hesitate to reach out to us at our Madison, WI office for further information.