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Equity in your home & HELOC’s

One of the benefits of owning a home is the chance to build equity. Equity is the difference between what you owe on your mortgage and what your home is worth. If your home is worth $300,000 and you owe $100,000 on your mortgage, you have $200,000 of equity.

With a Home Equity Line of Credit HELOC, you can then borrow against the equity in the form of a home equity loan.  A HELOC is a bit like a credit card with your home’s equity serving as your credit limit, with monthly fixed payments.. For example, say you have $200,000 of equity, you might qualify for a HELOC of $150,000. You can then borrow up to that limit to spend the funds on whatever you want, and you only pay back what you borrow.

Say you need to spend $50,000 on a major kitchen renovation. You can borrow that $50,000 from your HELOC. You’ll then pay back what you borrowed in regular monthly payments, with interest.

While HELOCs tend to come with lower fixed interest rates than credit cards or personal loans do, it makes them a more affordable option when financing home repairs or renovations. However, with interest rates averaging at 7% currently, (rates have come down recently), it makes sense if you have housing remodel and/or repairs as the interest can be tax-deductible, and these improvements will increase the value of your home.

There are risks to HELOC’s, especially when used for other endeavors such as credit card debt.  Credit card debt comes with sky-high interest rates, and to some it might make financial sense to use a HELOC to pay off your credit card debt, as the interest rate attached to the money you’ve borrowed against your HELOC will be far lower. Again, though, there is a risk. If you’re worried that you won’t be able to afford your HELOC payments, don’t borrow against your line of credit to pay off your credit card debt. Your credit card provider can’t foreclose on your home if you fall behind on your payments.

With Stock market investments, one can make a lot of money though, you can lose a lot, too. If you use your HELOC to pay for your stock market investment, you might even lose your home if you fall behind on your monthly payments. Yes, there are risks.

Some folks really want that dream vacation or use it for college education. The interest rates with HELOCs can be lower than what you’d get with private student loans. Again, this is risky. If you stop making student loan payments, your credit score will tumble.

You decide if the the potential gain is worth the risk. Yet, if the idea of making your dream home or simply getting your roof replaced is on your To Do list, using a home equity line of credit can be very beneficial, knowing you can tap into the equity of your home can make a difference in many ways.

Reach out with any real estate related questions, we are here to assist you.


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