A home equity line-of-credit, or HELOC, is usually an adjustable-rate loan because you can borrower the money anytime in the draw period.
This line-of-credit allows you to borrow only the money you need and offers a variable interest rate that is generally lower than refinancing a mortgage loan. Your payments will vary depending on the outstanding balance. Whether you want to consolidate debt or make renovations to your house, a HELOC is a great option.
A HELOC uses your home’s equity as collateral. It does not replace the first lien mortgage, as it takes a second position. Generally, you can only borrow up to 75 to 80% of the loan-to-value ratio in your home. This means that if your current first lien mortgage is at 80 percent of your home value you may not qualify. However, if you owe 60 percent or less of the value of your home on your current first lien, you may be able to borrow another 20 percent of the value through a HELOC.
One of the benefits of a HELOC over a personal loan or mortgage is that you are only charged 1% of the outstanding balance plus interest on the money you borrow.
The HELOC functions much like a credit card, with a maximum amount that you can use over a period of time, and you can borrow against that amount as you need money. When it is approved you can access a portion of the credit line at any time.
A HELOC may be more suitable for those who have borrowing needs that vary, and where the total cost is unclear. For example, you may want to remodel your home and unsure of the total cost. You may want to consider consolidating some or all debt at the same time.
With higher interest rates on mortgages today, many consumers are finding the equity in their homes an advantage for remodeling, additions and even debt consolidation.
Visit us or call us at 269.679.5291 to learn more about our HELOCs. At KCSB, you’ll meet one of our mortgage professionals ready to help you apply for your HELOC and offer you financial advice, too.
Kalamazoo County State Bank is an Equal Housing Lender.