HELOC: Understanding Home Equity Lines of Credit


Of all the assets you could use as collateral to qualify for a loan, your home is possibly the best one. This is because it’s usually of a higher value than any other option. 

If you’ve got some amount of home equity and want to get your hands on some cash, a home equity line of credit is your best bet. 

Here’s what it entails:

What is a HELOC?

A home equity line of credit (also known as HELOC) is like a second mortgage. It’s a way to draw cash based on the market value of your home. It works in a similar way to a credit card. After you’ve accessed the cash, you have to repay some of it (or all of it) every month. 

The underlying principle is that you borrow money against your own equity. This equity is the value of your home minus any amount you owe in the form of the primary mortgage. In short, the difference between your home’s market value and the mortgage value is your collateral.

This could also mean that there’s a possibility of you losing the home to foreclosure if you fall back on payments. This is because you’ve put up your house as collateral.

However, you need to own a significant amount of equity in order to qualify for a HELOC. Typically, a HELOC lender will allow you to borrow as much as 85% of your home’s market value, after subtracting the owed amount.

What are the benefits of HELOC?

One of the biggest benefits of a HELOC is that the loan is secured against the value of your home. This means that it’s easier for lenders to offer competitive interest rates if the collateral offers good financial security. 

In most cases, the interest rates for home equity loans are close to the first mortgage. Moreover, the overall financial costs are a lot lower compared to other unsecured borrowing sources, like credit cards. Even the closing cost is lower than that for other one-time loans. 

Other than that, it offers a huge lump sum of cash at a time. Unlike other loan sources, a HELOC isn’t ideally the go-to option if you need a small infusion of cash. It serves as a good option if you want a sizable, one-time loan for a home renovation or a wedding, for example. 

However, like all other mortgages and loans, your HELOC lender will also analyze your creditworthiness before you qualify for the loan. They may also look at your credit score, employment history, and income. Hence, a higher score means you could negotiate lower interest rates. 

Tyndall Federal Credit Union is a renowned credit union based in Panama City Florida that provides a number of loan options, including home equity loans. 

The rest of their financial services include loans, overdraft services, banking accounts, and e-services.
Head over to their website to learn more.

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