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There are lots of different ways that you can use the equity in your home to your advantage. Equity is simply the difference between what you currently owe on your home and what the value of the home is on the market today. Many people want to use the equity in these homes for a variety of purposes in their personal lives, but they don't know how to go about utilizing the equity in their homes in the best way possible.
In this post, we will explore one of the best ways to take advantage of that equity that has built up in your home through the booming housing market. As inflation skyrockets and things cost more than ever before, you can use a Home Equity Line of Credit (HELOC) to help take advantage of your home's equity to help you manage your growing list of expenses.
What is a HELOC?
A Home Equity Line of Credit (HELOC) is a line of credit that lets you borrow against the equity that you have built up in your home. You are essentially using your house as a line of credit in order to borrow money from the equity within your home. As you pay off what you have borrowed, that money will become available to you again in the future, which is similar to how a credit card works.
The HELOC will allow you to borrow as little or as much of your total loan amount as you wish during the "draw" period.
The "draw" period of the average HELOC will last 10 years and you pay interest on the actual draw amount, which could sometimes be less than your total loan amount available.
What Determines If I Am Eligible for a HELOC?
There will be a variety of different factors that weigh in on whether you are eligible to get a HELOC on your home or not. The following are usually factors that the lender will look at before determining if they are willing to extend you a HELOC on your home:
- Your credit score (and your past credit history)
- Employment history (they want consistency)
- Your average monthly income (from all sources)
- Monthly debts (amounts you are obligated to pay on current debts/commitments)
- The length of the period you had your mortgage
All of these factors will play into whether you will be able to get a HELOC against the equity you have built up in your home. Lenders want someone who is reliable and trustworthy in order to ensure that the loan is paid back in a timely manner. Moreover, the better your payment is history on other debts, the better your interest rates will likely be for the funds that you borrow through the HELOC you are given.
Why Are HELOCs a Good Way to Use My Home's Equity?
HELOCs are widely considered one of the best ways (if not the best way) to tap into the equity that your home has collected over time. As we see inflation rise at record rates and life expenses come up, using a HELOC can help you pay for additional expenses while offering the following benefits:
- Offers a revolving line of credit that is renewed and continuously made available as you make payments on what you already borrowed
- You need only pay interest during the draw period on most HELOCs
- You may be able to get a HELOC that offers a fixed interest rate during the drawing period
- You will not have your credit score lowered by several points to open a HELOC (many other forms of credit or borrowing can do this)
- You will generally experience lower costs to close the loan (HELOCS are generally smaller than many other types of loans)
- You can usually draw on the credit line whenever you choose throughout the draw period
These benefits often outweigh the benefits of other ways to tap into your home's equity. HELOCs offer consistency in their interest rates so that you know how much money you will have to pay back. They also offer you the ability to take out the money as you need it over the draw period attached to the HELOC.
How Do I Get a HELOC?
If you are looking to open a HELOC to tap into your home equity, First Savings Mortgage is here to help. We are here to answer all of your questions and showcase our top-of-the-line HELOC options that can help you financially. Please feel free to reach out to us at your convenience in order to start the draw period on your new HELOC and help you manage your rising expenses today.