22 Jul

Benefits of an Interest-Only HELOC

Interest-only heloc

A home equity line of credit can be a great tool for homeowners. And an Interest-Only HELOC allows for even more flexibility with your money and lower monthly payments.

This loan product gives you an allotted amount you can spend with a set amount of time to spend it. Essentially borrowing money against the equity built up in your home, with the interest being the minimum monthly payment.

In order to make the most of an Interest-Only HELOC, it’s important that homeowners understand what it is and how to utilize it to its full potential.

Access to More Cash

Home equity line of credit is comprised of two phases, a draw period and a repayment period. They’re pretty self-explanatory.

  • During the draw period, you’re able to access money from your line of credit to make monthly payments. Those payments go toward the interest you owe. In the long run, this adds flexibility.
  • Then, during the repayment period, you pay back the remaining interest and principal.

When you only have to make payments toward the interest, not the principal, the result is extremely low monthly payments.

Low Interest Rates

Interest-Only HELOCs are one of the most affordable and flexible ways to borrow money. The lower your HELOC interest rate is, the lower your monthly payments, so make sure your bank offers competitive rates. An Interest-Only HELOC has the monthly payment as the interest accrued, so that means even lower payments!

For example, RMLEFCU offers interest only HELOCs with rates starting as low as prime +1% APR.

Unlike a loan, a home equity line of credit is readily available whenever you need it. You apply for the line once, then draw on it as you need it. Remember, as the principal is repaid, funds immediately become available for use again.

Flexible Payments

In an Interest-Only HELOC, you only pay the monthly interest rate during the draw period, so you can manage your budget around those expectations.

Additionally, you can choose to pay back just the interest cost or make additional payments toward the principal. The freedom to choose your pay back amount can alter based on your available budget and income.

How to Know if an Interest-Only HELOC is Right for You

Most people choose an Interest-Only HELOC when attempting to conserve monthly income in the short run. However, there are other times when this option is beneficial:

  1. When you’re juggling fluctuating income and need flexible payment options
  2. If you plan on selling your home after renovations
  3. If you need to consolidate debt
  4. When you need a large sum of cash for an investment
  5. If you’re trying to minimize monthly payments during a flip
  6. If you’re making a down payment on a second home before selling your first

Call us today to discuss our low HELOC rates and put your home’s equity to great use! (303) 458-6660

05 Feb

What is a HELOC and Why Should You Have One?

Home Equity Line of Credit (HELOC) piggy bank under a house

In many places, home values have grown considerably for recent years, providing homeowners an opportunity to tap into the equity of their homes to make renovations or otherwise boost their overall financial picture.

Although a home equity line of credit (HELOC) may be a good way to quickly access cash, it is important to proceed with caution and have good reason to do so. We’ll explain the ins-and-outs of a HELOC and some reasons why getting one could be the right move for you.

What is a HELOC?

A home equity line of credit, or HELOC, is a second mortgage that gives you access to cash based on the value of your home. You can draw from a home equity line of credit and repay all or some of it monthly, similar to a credit card.

You borrow against your equity with a HELOC which is the value of the house minus the amount that you owe on the primary mortgage. Which means:

  • You might lose your home to foreclosure if you don’t make the payments because you’re using your home as collateral.
  • To get a HELOC you need to have plenty of equity. Typically, a HELOC allows you to borrow up to 85% of the value of the home subtracted by the amount you owe on the loans.

For something like a major repair or remodeling project that increases your home value, taking out a HELOC would be great. You should not get a HELOC if you’ll be putting yourself at risk of losing your home because you are unable to pay back what you are borrowing.

How Does it Work?

A HELOC works kind of like a credit card. You will borrow money up to a certain credit limit set by the lender and then pay it back, along with interest, the borrowed amounts. This option can offer more flexibility and you can even withdraw and make payments daily or weekly.

How Much Can You Borrow?

The credit limit for a HELOC depends on a number of factors, including your income and outstanding loans, but it is largely determined by the market value of your home and the amount you owe on your mortgage.

Say you have a $500,000 home on your first mortgage with a balance of $300,000 and your lender allows you to use up to 85% of your home’s equity. You may receive a HELOC with a limit of up to $125,000:

  • $500,000 x 85% = $425,000.
  • $425,000 – $300,000 = $125,000, your maximum line of credit limit.

What Would I Use a HELOC For?

A HELOC is commonly used for home repairs and upgrades. If you use the money to buy, build, or substantially improve your house, the interest on your HELOC may be tax-deductible.

Some people also use home equity lines of credit to pay for education. You should not use a HELOC to pay for vacations and vehicles because those expenses do not build wealth, and if you default on the loan, you run the risk of losing the home.

How to Get a Low-Interest Rate

 You can automatically get a low-interest rate just by being a member of RMLEFCU! A good credit score can lower your interest rate even more. Order your free annual credit report from one of the three credit offices (Experian, TransUnion or Equifax) or check the RMLEFCU app to check your credit score. If you’re close to the cutoff lines between a good and excellent score, spend some time and raise your score before you apply for the HELOC.

When you’re ready to have a little extra cash, give RMLEFCU a call at 303-458-6660 or email lending@rmlefcu.org. We’ll get you the best rates.

06 Feb

HELOC the Heck out of Your Home Remodel

If you are considering a home equity line of credit, or HELOC loan, to make home repairs and remodels, you are in good company. Year after year, home improvement is the #1 way homeowners use their home equity line of credit. Don’t know what a HELOC is? Watch this quick video and continue reading below.

Since a HELOC’s collateral is the equity in your home, it makes sense to put the money back into what is usually your most valuable asset.

If you live in the Denver metro area, your home value has risen, giving you a larger cushion of equity to use your HELOC for home remodeling. As a result, when you make your home more attractive to potential buyers, the payoff will be well worth the investment when you sell.

Even if you are not planning to sell for a while, you get to enjoy the value add to you and your family’s daily life from these improvements.

Which rooms and improvements deserve your attention? Thankfully, Remodeling Magazine creates an annual report revealing the costs of executing 29 remodeling projects in 99 markets nationwide as well as real estate pros’ views of how much those projects will increase a home’s value at resale. Results below are specific to Denver for 2017. Read More