What is a HELOC?
A Home Equity Line of Credit (HELOC) is a revolving line of credit that is secured by the equity in your home. Home equity represents the difference between your home’s current market value and the outstanding balance on your mortgage. For instance, if your home is valued at $300,000 and you still owe $200,000 on your mortgage, your available equity would be $100,000. The amount you can borrow through a HELOC depends on both your home’s value and your remaining mortgage balance.
How Does a HELOC Work?
A HELOC Typically has Two Phases:
Draw Period: With a HELOC, you can withdraw funds as needed during what’s known as the draw period, which is a set timeframe defined by the lender. During this period, you’re allowed to borrow up to your approved credit limit, giving you flexibility to use the funds when and how you choose. This structure makes a HELOC a convenient option for managing large expenses over time, such as home improvements or educational costs. The typical draw period lasts between 5-10 years.
Repayment Period: The repayment period begins after the draw period ends. During the draw period—typically 5 to 10 years—you can borrow money and may only be required to make interest payments. Once the repayment period starts (often lasting 10 to 20 years), you can no longer withdraw funds, and you must begin repaying both the principal and the interest on the amount you borrowed. Monthly payments usually increase at this stage, since you’re paying off the actual loan balance rather than just the interest. The exact terms can vary by lender, so it’s important to understand your specific agreement.
Key Benefits of a HELOC
- Flexibility:
- Borrow only what you need, when you need it.
- Lower Interest Rates:
- Compared to personal loans and credit cards.
- Potential Tax Benefits:
- Interest may be tax-deductible if used for home improvements.*
- Use for Various Purposes:
- Home renovations, debt consolidation, education expenses, or emergency funds.
Next Step?
Talk to Mutual Savings Credit Union today!
Click here to contact Mutual Savings Credit Union to learn more about what your home equity can do for you!
