A HELOC loan is more commonly known as a second mortgage where you can leverage how much equity you have in your home to borrow money intended for personal expenses like consolidating debt or remodeling a kitchen. The math is simple; your home equity is the difference between the current property value and how much you still owe on the mortgage. For example, if your home’s value is $250,000 and you still owe the lender $200,000, then the equity you have in your home is $50,000.
Some finance experts advise that you apply for a home equity line of credit only if you can pay back the borrowed amount responsibly. A home equity line of credit, which works like a credit card, approves you for the entire amount which you can withdraw as necessary. Can you easily find a lender offering HELOC loans? The answer is yes. A recent review of LendingTree indicates that they connect borrowers to various lenders offering HELOC loans. Aside from LendingTree, many other lenders provide home equity and HELOC loans to interested borrowers.
Advantages of HELOC loans
What makes a HELOC loan so attractive? Here are some notable benefits:
- You can use the loan to consolidate debt. Credit cards have notoriously high interest rates. If you want to pay off some of your credit card balances, you can use a HELOC loan. HELOC loans have higher interest rates than a mortgage, but lower than credit cards, which means that if you pay off some of your credit card debt, you will be paying less interest on a home equity line of credit.
- Pay only the interest. If you want to pay down the balance on your HELOC loan, you need to pay your monthly payments regularly. But in case you are in a bind, some HELOC lenders offer the option to pay only the interest, which is a significant benefit compared with other types of loans.
- Payments are tax deductible. You can claim HELOC interest payments as tax deductible. But for it to qualify, your loan must meet the required amount. Nevertheless, this is still worth looking into since no other revolving credit, especially credit cards, offers this option.
- Improve your credit rating. Timely payments on your HELOC loan will reflect positively on your credit rating.
Considering these advantages, a HELOC loan is certainly an excellent option if you are looking to finance some important and large expenses.
Tips in getting a HELOC loan
Different lenders have varying terms and fees, so it is always good to compare options. Aside from inquiring about traditional lenders, you may also consider mortgage companies and credit unions. Another option is to hire a broker who will do most of the work for you.
Don’t be enticed right away when you see offers for low interest rates. As much as possible, the lender should be able to provide complete documentation on how much it will cost to close the loan, including the advertised interest rate. Expect HELOC loans to include additional fees and charges, but again this depends on the lender’s policy.
Disclaimer: This content does not necessarily represent the views of IWB.