Tap Into Your Home’s Equity with a HELOC

If you’re a homeowner looking for ways to cover an upcoming big expense, the answer may be  right in front you and all around you.
 

A HELOC, or Home Equity Line of Credit, lets you borrow against the equity you’ve built up in your property. Specifically, a HELOC taps into your home’s equity—the difference between the home's market value and the outstanding balance on the mortgage; basically, the portion of your home that belongs to you outright.
 

Unlike a traditional loan, where a lump sum is borrowed and repaid over a fixed period, a HELOC provides a revolving line of credit. This means you can borrow, repay, and borrow again, up to a predetermined credit limit. You can access funds as needed, for anything from home renovations and education expenses to debt consolidation and even unexpected emergencies. A HELOC offers the freedom to borrow only what you need when it’s needed.
 

Other advantages of a HELOC versus other financing options, include:

Lower Interest Rates
HELOCs often come with lower interest rates compared to other forms of credit, such as credit cards or personal loans. Plus, the higher your credit score, the more likely you’ll be to get a lower interest rate for your HELOC. Over time, lower interest rates can add up to significant savings, making a line of credit a more cost-effective option for financing major expenses.

Tax Deductible
In many cases, the interest paid on a HELOC may be tax-deductible, especially if the funds are used for home improvements, further reducing the overall cost of borrowing.

As for how much credit you’ll qualify for, that amount is determined by how much equity you have in your home. Most lenders will allow you to access up to 80% of the equity you have in your home, however, you don’t have to apply for—or spend—that full amount.

When it comes to using and paying back a HELOC, you typically have 10 years to withdraw cash from a line of credit once it’s approved but you will pay interest on it over that period. Any funds used must be paid back within 20 years from the time you access them. This payment includes the principal plus interest at a variable rate.

Other potential costs associated with a HELOC may include closing costs and annual fees.

While not all lenders—like Pittsfield Co-op—charge closing costs, those that do often charge between 2% and 5% of the loan amount.

Similarly, some lenders charge annual fees for HELOC—usually $50 per year. Again, not all lenders, including Pittsfield Coop, charge annual fees.

If you’re a homeowner contemplating how to fund one, or several, big expenses in the near future, a HELOC may be an easy and cost-effective option to accomplish what you want on your own terms.

FOR more information or questions, please contact a member of our consumer lending team or visit any branch location. 

DISCLAIMER: This article is meant for educational purposes only and is not intended to be construed as financial, tax, investment or legal advice.