What is a HELOC?

 

If you’re a homeowner, you’re probably familiar with equity. Equity is the difference between your home’s value, and the remaining balance owed on your home loan.  Most of the time, the equity you’ve built in your home goes unused. But what if you could leverage that equity for home improvements, renovations and other expenses?

A home equity line of credit (HELOC) is a revolving line of credit, secured by the home equity you’ve built. The amount you can borrow with a home equity line of credit is determined by how much equity you have in your home. A portion of that equity—as high as 89.99%—can be used for a home equity line of credit.

Uses for a HELOC

Most people use HELOCs for home improvements and renovations. If you’ve ever considered updating your kitchen, renovating your bathroom, or finishing your basement, a HELOC could be the answer.

In fact, HELOCs can even increase the value of your home if used correctly. Improvement projects like energy efficient upgrades, adding square footage with a finished basement, or replacing an aging roof are great ways to potentially boost your home’s value.

A HELOC can be used to safeguard your home as well. For example, installing a whole-home generator can ensure your sump pump keeps running and your basement stays dry during prolonged power outages. Likewise, installing security cameras or security systems can help protect your home, and your family, from crime.

You can also use a home equity line of credit for replacing furniture or appliances. Some people even use a HELOC to invest in themselves and their future by finishing a degree or consolidating high interest debt to put more money in their pockets at the end of each month.

Finally, HELOCs are a great option for emergency expenses. If your air conditioner kicks the bucket in the middle of a sweltering summer, or your furnace can’t keep up with Jack Frost’s plans, having a HELOC can soften the blow of sudden, expensive repairs.

Draw period vs. repayment period

HELOCs are broken up into two different periods—the draw period and the repayment period. During the draw period, which typically lasts 10 years depending on the terms and conditions, borrowers can draw as much money as needed, up to their total approved credit limit. During this time, monthly payments are typically interest-only. If you make any principal payments during this time it would allow you to draw those funds again.

The next phase is the repayment period, which typically lasts 20 years. During the repayment period, borrowers are unable to take money from the credit line any longer, and HELOC payments are comprised of both interest and principal.

If you want to pay off your HELOC early, that’s perfectly fine! There’s no early prepayment penalty.

What do I need to get started?

Getting started with a HELOC is very easy. First, use our HELOC payment calculator to determine how much home equity you’ll be able to tap into and estimate your monthly payments. Then, head over to our HELOC page and either schedule an appointment with one of our lending experts or apply online.

During the application process, lenders will run credit checks, verify income through W-2 forms, pay stubs, tax returns, or other sources, and assess total debt. Other factors, like prior bankruptcies and foreclosures could impact HELOC approval decisions.

The next step in the process is to get a home appraisal. This appraisal helps determine how much your home is worth in an ever-changing housing market.

Depending on your home’s location, characteristics, property type and loan amount, it can be a full appraisal, "drive-by” appraisal, or an AVM (Automated Valuation Model). Other factors, like the age of the home and comparable sales in the neighborhood, can also impact the appraised value. Your home’s appraised value will be compared to your total outstanding home loan to determine your home equity.

Once you’ve been approved for a HELOC, you’ll be able to transfer your HELOC funds directly into your checking account as needed. That means you can get started on those time-sensitive home improvement projects right away.

When you begin working with the loan officer, you’ll have the option to lock in a competitive rate and choose from HELOC terms ranging from 60-240 months, as soon as at the time of closing*. This flexibility allows you to determine an achievable monthly payment amount, and structure your HELOC terms to fit your needs.

Get started today

There’s never been a better time to put your home equity to use. Apply today.