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You’ve probably heard it before: your home is one of the biggest investments you’ll make in your lifetime. And while homeownership may give you a certain feeling of pride and accomplishment, it may also feel like other financial needs take a back seat to your monthly mortgage payment. The chance to see that big investment payoff just might not come soon enough.
Or will it?
With every monthly mortgage payment, you’re gaining more value—or equity—in your property. In reality, you don’t have to wait until you sell your home to access the value you’ve built—whether you want flexible purchasing power, need to build an emergency fund or cover expenses from a remodel.
A Home Equity Line of Credit, or a HELOC, is one way to use the value of your home to get the money you need for larger—or unexpected—expenses. A HELOC is a lot like a credit card: you have a certain credit limit available to you that you can use to make purchases when needed. You pay monthly accrued interest on the outstanding balance and repay principal at a later date.
The biggest difference? A credit card is unsecured debt, whereas a HELOC is backed by an asset with value: your home. Because of this, interest rates are typically much lower than a standard credit card.
The line of credit available depends on the amount of equity in your property. You may need to get your home appraised to find the answer, but generally you can borrow up to 80% of its value, minus what you owe.
For example: your home is worth $150,000 and you still owe $75,000. So, 80% of the appraised value is $120,000. Subtract the amount you owe—$75,000—and you get $45,000. Your HELOC limit could be up to $45,000.
Of course, there are other factors at play, too: your current debt-to-income ratio may mean a smaller line of credit just to ensure you can pay back what you borrow.
The best way to take advantage of a HELOC is to find a banker who will listen to your current financial needs and goals and will help determine the best course of action for you. Remember: your home is your biggest investment, and you need a team who will take care to protect it as much as you do.
Our experienced team would love to help. Get started today!