HELOC stands for ”Home Equity Line of Credit”. A HELOC is a unique kind of mortgage which enables you to make use of the equity you have built up in your house without having to refinance your entire home loan. That is, it is a specific type of home loan. A second loan against your home.. or a “second mortgage” as it is also called.
How much money you can borrow through a HELOC depends upon how much your home is worth and how much equity you have. Your residual value is simply the difference between the current market price and how much you owe on it. If your house is valued at $350,000 and your outstanding mortgage is $200,000, you have $150,000 in equity.
To have a lot of equity in your home is a great asset. However, if you are confronted with immediate financial needs, it will not do you much good to have it all tied up in equity that you cannot use.
To open a HELOC enables you to have access to the equity in your home if you need the extra money. You may require the cash to repair your leaking roof, landscape improvements or kitchen upgrades. This is one way a HELOC can help you to get the repairs you need done without costing you a lot of out of pocket expense.
An additional use of HELOC is for debt consolidation. Since the rate of interest on the HELOC is lower compared to those on credit cards and other personal debt, the HELOC can be an efficient means to clear your debt permanently. Keep in mind, however, that if you face monetary difficulties once again and you cannot honor your mortgage installments you may be in danger of losing your home.
The HELOC interest rates will be greater than the actual rate on your first home loan. This is because from the financial institution perspective second home loans tend to be more risky. The residual value cashed also impacts on the interest rates. The more equity you have in your home, the lower the interest rate.
The types of HELOCs vary, just as there are different types of first home loans. You can get a fixed rate of interest or a flexible rate of interest. You can take the entire amount of the second loan in a lump sum, or you can use it only as you need it.. or take part of it now to meet urgent expenses and leave the remainder as a credit line that you may draw from should you have additional expenses.
Some financial institutions will issue checks which you can use to draw against your Home Equity Line of Credit, and others even provide an ATM card for automatic withdrawals.
Whatever your requirements might be, there is a HELOC available for you. Look around as you would do for a first home loan and ensure that you are proposed the best possible offer.