What is a HELOC?

Owning a home is a cornerstone of the American dream. Over time, as you pay off your mortgage, you build equity in your home. This equity, often a significant amount, sits unused most of the time. But what if there was a way to unlock this potential?

Enter the Home Equity Line of Credit (HELOC).

What is a HELOC?

A HELOC is a revolving line of credit that allows homeowners to borrow against the equity they've built up in their homes. Unlike a traditional home equity loan that provides borrowers with a lump sum, a HELOC offers a flexible credit line which can be used as needed.

The amount you can borrow through a HELOC is determined by the equity you've accumulated in your home. Lenders typically allow homeowners to borrow a portion of their home's appraised value, minus any outstanding mortgages. It’s easy to calculate your home equity with our convenient calculator.

How can I use a HELOC?

There are countless uses for a HELOC. While most people choose to use their HELOC to renovate and improve their homes, that’s just the tip of the iceberg.

Home Improvement Projects:

• Remodeling kitchens and bathrooms: Modernizing these spaces can not only enhance your living experience but can also provide a significant return on investment when selling your home.

• Adding outdoor decks or patios: Outdoor spaces have become more coveted, especially in the era of remote work. Adding a deck or patio can offer a retreat and serve as an additional entertainment space.

• Adding new rooms or extensions: Whether it's accommodating a growing family or adding a home office, extensions can increase your home's square footage and value.

Education Expenses:

• Paying for tuition and fees: With the rising costs of education, a HELOC can provide the necessary funds to cover college or graduate school expenses.

• Covering the costs of textbooks and study materials: Often underestimated, these costs can be significant over the course of a degree.

• Financing student accommodations or overseas programs: Studying abroad or needing off-campus housing can be a considerable expense, and a HELOC can bridge that gap.

Debt Consolidation:

• Paying off high-interest credit cards: With typically lower interest rates, a HELOC can be used to pay off credit card balances so you can save on interest in the long run.

• Consolidating personal loans or other outstanding debts: Streamlining debts into one monthly payment can make financial management more straightforward and could result in lower interest payments overall.

Travel and Leisure:

• Funding once-in-a-lifetime trips or vacations: Whether it's a dream vacation or a world tour, a HELOC can provide the necessary funds without disrupting regular finances.

• Investing in hobbies or personal passions: Whether you're diving into a new hobby or furthering a lifelong passion, some pursuits, like photography or music, might require substantial investments in equipment or training.

Emergencies:

• Covering unexpected medical expenses: Health emergencies are unpredictable, and insurance might not cover everything.

• Managing sudden home repairs or replacements: Be it a burst pipe, a damaged roof, or an appliance breakdown, unexpected repairs can be financially draining. Accessing funds through a HELOC can alleviate the stress of such situations.

• Tackling other unforeseen financial hurdles: From legal expenses to supporting a loved one in need, life is filled with financial surprises, and a HELOC can offer a safety net for such times.

Tapping into a HELOC allows homeowners to leverage the value they've built in their home, offering financial flexibility to address various needs and opportunities.

How does a HELOC work?

A HELOC is typically structured in two phases:

Draw period: Lasting around 10 years, during this phase, you can borrow against the line of credit. The monthly payments are often interest-only, though you can pay more to reduce the principal if you choose. As you repay the principal during this period, those funds become available to borrow again, making it a revolving line of credit.

Repayment period: Once the draw period ends, the repayment phase begins, usually lasting 20 years. During this time, you can no longer borrow from the HELOC and must start paying back both the principal and the interest. This period ensures that the loan gets fully paid off by the end of the term.

What are the benefits of a HELOC?

• Financial flexibility: A HELOC's revolving credit structure offers unparalleled flexibility. Borrow only what you need when you need it, ensuring you're only paying interest on the amount you've used.

• Lower interest rates: Compared to other borrowing options like credit cards, a HELOC typically has lower interest rates. This is because it's secured against your home.

• Potential tax advantages: The interest paid on a HELOC may be tax-deductible if used for home improvements, although it's essential to consult with a tax professional regarding your specific situation.

• Customizable repayment options: Many lenders offer various repayment structures, allowing you to find a term and rate that best suits your financial situation.

How do you get a home equity line of credit?

If a HELOC sounds like the right fit for you, there are a few steps involved in securing one:

• Determine your home's equity: The equity is the difference between your home's market value and the outstanding balance on your mortgage. Online tools can give you an estimate, but an appraisal will provide the most accurate figure.

• The application process: You'll need to apply for a home equity line of credit. This will typically involve a credit check, verification of income, and a review of your outstanding debts.

• Property appraisal: The lender will likely require a formal appraisal of your property to determine its current market value.

• Approval and terms: Once approved, the lender will provide you with the terms of your HELOC, including the interest rate, credit limit and the duration of the draw and repayment periods.

A HELOC offers homeowners a flexible and often cost-effective means to access the value tied up in their homes. Whether you're looking to make home improvements, consolidate debt, or have a safety net for emergencies, a HELOC can be a valuable tool in your financial arsenal.

Apply now for a Home Equity Line of Credit from Associated Bank.