How to Calculate HELOC Payment

With a cash-out refinance, you can turn your home equity into cash for any purpose, not just home improvements. Common reasons for a cash-out refinance are consolidating higher-interest credit card debt at a lower interest rate and paying for higher education.

With a cash-out refinance, the amount of your loan and your monthly payments will go up, but the interest rate on the cash you take out may be lower than other alternatives.

To learn more, check out this article: How Does a Cash-Out Refi Work?
 

You don’t. There are two other options: a home equity loan (HELoan) and a home equity line of credit (HELOC).

A HELoan is a second mortgage that usually has a fixed interest rate and monthly payments of the same amount every month. A HELOC works more like a credit card, but the interest rate is typically lower than a credit card.

You have a maximum amount you can borrow as needed. HELOCs usually have a variable interest rate and monthly payments that may go up or down.

Take a closer look at the differences: Should You Consider a HELOC or HELoan?

Usually, people need equity equal to 15–20% of their home’s current appraised value to qualify for a HELOC. For example, if your home’s value is $300,000, you may be able to qualify for a HELOC with a credit line of $45,000–$60,000.

It usually takes anywhere from two to six weeks to get a HELOC approved and processed. If your financial situation is simple, you may be able to get a HELOC faster than someone whose situation is complex. Either way, you can help keep the process moving by responding to your lender’s requests for financial documentation as quickly as you can.

Yes. Like a second mortgage, a HELOC uses your home’s equity as collateral to secure the loans. The difference is that a HELOC gives you a line of credit instead of a lump sum of cash.

Yes. A lien is any debt on an asset that uses the asset as collateral. With a HELOC, your loan is the asset, but other assets like cars, trucks, boats and RVs can also have liens in the form of loans.

HELOCs are popular for making home improvements, but it’s a myth that improvements are the only thing you can use a HELOC for. You can use a HELOC for anything, including consolidating higher-interest debt, medical expenses, school tuition, investment in income properties and emergencies.

Yes. Depending on your lender, you can even use a HELOC on investment property. At United Community Bank, we do consider applications for HELOCs to cover a new home downpayment.

Yes, you usually do. A HELOC appraisal helps your lender determine how much your home is currently worth and calculate the amount of equity available accurately. Sometimes, a lender will make an exception if you already have a recent appraisal, or the amount you’re requesting is low.

HELOC repayment happens in two phases. First, you have a draw period. Second, you have a repayment period. During the draw period of the first five to 10 years, you may only have to make payments on interest, not on principle, too. During the repayment period, you’ll be required to make higher payments that include interest and principle.

Yes, but you may pay higher interest rates on your HELOC, and your lender choices may be limited. Another option is to consider a co-signer. Either way, you can take some steps to improve your credit score.
Check out these tips: Give Your Credit Score a Boost.

HELOC interest rates are the Annual Percentage Rate (APR) you’ll pay on what you withdraw from a HELOC, spread out over monthly payments. These rates vary by state and lender. Talk with your local United Community Bank lending specialist to get current rates.

When you pay off your HELOC, you’re freed from the monthly payments, and you get your home equity back, which you can access again in the future if needed. You also eliminate the risk of foreclosure that comes with a HELOC if you can’t make your monthly payments on time.

It can be, but there are pros and cons to consider. If you fund your child’s education with a HELOC, you’ll likely pay lower interest rates than on a Parent Plus loan. A federal student loan is another option that may have even lower rates than a HELOC and the benefit of not putting your home at risk if you’re unable to make your HELOC payments.