06 Feb

Understanding Home Equity Lines of Credit (HELOC)

HELOC on laptop computer

Sometimes life throws you curveballs like needing to update your kitchen or fix a leaky roof. Home improvement projects are rarely cheap, but a HELOC is great for providing you with the funds you need to get them done. RMLEFCU has competitive, variable rates for several recurring or one-time needs consisting of major life events, home remodel projects, debt consolidation, and more!

But before you get into signing the papers, what exactly is a HELOC? Don’t worry, we’ll explain everything so you can become an expert on Home Equity Lines of Credit and fix up your home!

What is a HELOC?

A HELOC or a Home Equity Line of Credit, allows homeowners to borrow money against the equity they’ve built up in their home, which is the difference between your home’s value and your mortgage balance.

HELOCs can provide numerous opportunities for flexibility in borrowing; however, they are limited and carry the risk of foreclosure. Opening a HELOC can require considerable discipline, but we’re here to help keep you on track.

How does a HELOC work?

A HELOC is similar to a credit card where the borrower uses a line of credit to borrow amounts that total no more than the credit limit, instead of advancing the entire sum up front.

HELOC funds can be withdrawn during the “draw period” which typically ranges from five to 25 years. After the draw period comes repayment which consists of the borrower repaying the amount withdrew plus interest. There may be a minimum monthly payment required during the draw period which often consists of “interest only”.

What is the length of a HELOC term?

The length of a HELOC can vary up to 30 years, with a 10-year draw period and a 20-year repayment period. While borrowers can choose to withdraw the available money immediately, lenders can structure HELOCs as long-term relationships.

At RMLEFCU, our HELOC repayment terms are up to 15 years and your funds are available anytime, without reapplying. You only need to apply once and can use it repeatedly thereafter.

Are there any additional fees?

Annual fees can be included in HELOCs, including other fees such as transaction fees and closing costs. A lot of the terms and fees included with your HELOC are determined by the individual lenders. You will also pay interest on your HELOC. Most lenders offer a variable interest rate.

If you make interest payments with RMLEFCU’s HELOCs, those payments may be tax deductible.

Are there alternatives to a HELOC?

Home equity loans and HELOCs sound similar, but these two products are actually very different. Some of these differences might determine which option is better for your needs.

A home equity loan doesn’t allow for revolving borrowing, like the HELOC. Instead, the borrower gets all the money in a lump sum, up front, and spends the life of the loan repaying it. A home equity loan also carries a fixed interest rate, which can provide more security over the life of the loan. This may allow borrowers to plan more easily when putting together a budget for the loan’s repayment schedule.

RMLEFCU also has a home equity loan option with similar attributes to our HELOC loan! Depending on what you need the loan for, you should research which one will benefit your needs the most.

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

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