Unexpected expenses or emergencies can be devastating to your finances. One medical bill can set you back hundreds, if not thousands, of dollars. Even smaller financial problems, such as finding the money to perform repairs in your home, can leave you without any way to make ends meet.
However, if you own your house, you have an emergency lifeline surrounding you: the equity in your home. You can tap into this equity with a Home Equity Line of Credit (HELOC) and use the money however you need.
What is Equity in a Home?
Your house has a market value. Depending on several factors, such as the home's location and the state of the real estate market, your home value may appreciate over time. When people talk about home equity, it’s the difference between the value of your home and any loan balance left on the mortgage.
Most homeowners take out mortgage loans when purchasing their house. The amount of your remaining mortgage is subtracted from the market value of the house. What is left over is the home's equity. You can borrow against a portion of the equity of your home and use the funds however you wish. See below for an example of this:
Current Market Value of Your Home: $200,000
Current Mortgage Balance Owed: $120,000
Home Equity Available: $80,000
In this example, you would be able to borrow a portion of the $80,000 in equity as a HELOC. The amount of the available equity that you can borrow varies by lender.
Tap into Your Equity with a HELOC
HELOC stands for "Home Equity Line of Credit." Think of a HELOC as a second mortgage being placed onto the house. The lender uses your home as collateral to provide you with the funds you need. With a HELOC, it is similar to a secured credit card since the lender decides on a set borrowing amount, such as $50,000.
You obtain this amount for a specific portion of time, usually between 5 years to 10 years (varies by lender), and you only pay back the amount you actually spend. So even though your limit is $50,000, if you only use $10,000 to pay off a medical bill, you only have to pay back the $10,000 balance. In addition, you still have the remaining $40,000 to use if you so desire.
HELOCs offer flexibility as you don't have to use the total amount that the lender provides to you. In addition, they are usually more affordable borrowing options than other types of loans.
First, your home is being used as collateral, making a HELOC a secured loan. Secured loans typically have lower rates than unsecured loans, like personal loans or credit cards. Second, HELOCs have longer repayment periods which helps lower your monthly payment even more.
The Possibilities are Endless
Another great feature about a HELOC is you can use the money for just about anything, like remodeling your home, paying for college, consolidating debts, or even funding large events, like a wedding.
However, one of the greatest benefits of a HELOC is that it’s available to use when you need it. Should an emergency or unexpected event take place, for instance a pandemic, or medical problem, you’ll have peace of mind knowing you have the funds necessary to make ends meet.
Yet, just like with any credit card, make sure only to borrow what you can reasonably pay back as you don't want to miss any payments.
Ready to explore how a HELOC can become your emergency financial lifeline? We’re here to help answer all your questions and walk you through the entire approval process. Call your local branch to get started!
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