What is a Home Equity Line of Credit?

September 22, 2023 | Posted by: Sherry Corbitt

A home equity line of credit (HELOC), is a loan available to homeowners once they purchase a property. Individuals can apply for this loan, by offering collateral of the equity in their home, which if approved will have additional funds available during the duration of their current mortgage term. Homeowners can be approved for the HELOC and choose not to use it. However, once the funds are used, they will pay additional interest for this loan. This loan may have a different interest rate, than the mortgage on the property, which these details are outlined when signing the original mortgage documents. Some benefits of a HELOC include:

Fraud Protection

When a homeowner doesn't have a mortgage registered on their home, this can allow individuals to commit mortgage fraud. A mortgage can potentially be registered on the property without the knowledge of the owners. Having a HELOC registered on the property, even if unused, can provide additional protection for homeowners! 

Lower interest 

When homeowners encounter a large expense and require a loan, often a HELOC has a lower interest rate compared to other loans or credit products. Having this loan available provides homeowners with security knowing that in case of an emergency, they can access funds without it having a costly fee. 

The low cost of borrowing also allows buyers to make additional investments, otherwise not available without saved equity. This commonly includes home renovations, in which buyers may take a HELOC, renovate their home, and sell for a higher value. This allows the buyers to repay the loan and further build their equity. 

Flexible Repayment 

This type of loan offers significant flexibility for repayment which the owners can choose to add the payments on to the existing mortgage payments. Additionally, once the loan is paid down, the owners can take out the existing funds available. This allows homeowners to pay down existing debt and simultaneously have funds available for other debts/investments.

Example: Homeowners have used their full HELOC limit of $100,000 for home renovations. They have paid back $15,000, and can now use the available funds to purchase their teen a vehicle. They are able to add this loan to their current mortgage payment, and also have a lower interest rate than offered at the car dealerships! 

Overall, there are many benefits for homeowners to apply for a HELOC. Even if these funds are not used, having them available is a great option for many families. This type of loan has a significantly lower interest rate compared to other credit options and can be great when looking to acquire new credit. If you have any questions, please reach out and I would be happy to discuss if this loan is a good option for you!

Your Broker for Life, 

Sherry Corbitt

Back to Main Blog Page

Share This Page On: