Did you know you can use the value of your home to get financing for investing in big projects or cover unexpected expenses? A Home Equity Line of Credit, or HELOC, might be just what you need. Whether you’re already a homeowner or considering a new home purchase, being informed about a HELOC will provide you with valuable information as you consider your financial future. Let's dive into the most common questions about HELOCs to help you get started.
What is a HELOC?
A HELOC is a variable-rate revolving account with a credit limit established based on the equity in your home. You can borrow money up to a certain limit, pay it back and borrow again – not unlike a credit card but using your home as collateral.
Although it sounds similar, a HELOC is different from a home equity loan. With a HELOC, you have a draw period where you can borrow as needed paying only interest. After that, you enter the repayment period, where you pay back what you've borrowed. In comparison, a home equity loan gives you a lump sum of money all at once.
Why should I consider a HELOC?
A HELOC can be a smart choice for many reasons:
- Flexibility: It offers an option where you can borrow only what you need when you need it.
- Lower cost: Interest rates are usually lower than credit cards or personal loans, and there are low or no closing costs. This can save money in the long run.
- Flexible repayment options are often available.
- Tax advantage: Interest paid on a HELOC may be tax-deductible, making it an even more attractive option.
- Fewer restrictions: Unlike many other loans, a HELOC has no restrictions on how funds are spent, giving you the freedom to use it however you want.
What can a HELOC be used for?
A HELOC can be used for almost anything!
- Home improvements and repairs,
- Consolidating high-interest debt, including credit card debt,
- Buying property,
- Education costs, and
- Medical bills and unexpected expenses.
They are most often used for home renovations because you can borrow money as you need it, which is ideal for big or lengthy projects. This way, you only pay interest on the amount you use. This is helpful if your project costs are spread out over time. It also allows you to manage your cash flow more effectively, ensuring you have funds available when you need them.
While home improvement projects are the most common, some people even use a HELOC for emergency funds or to invest in opportunities that arise. HELOCs are a versatile tool for managing finances and the flexibility means you can adapt it to your needs as they change over time.
How do I know if I’m eligible? And do I have to give up my low first mortgage interest rate?
Do you own and have equity in your home? If so, then reach out to your bank representative to start the conversation and understand any impact or not to your existing mortgage rate. A HELOC can be a first or second loan, which means you can take advantage of the equity in your home without refinancing your existing mortgage, or it can be structured more or less as a refinance.
A HELOC can be a powerful financial tool when used wisely. It provides easy access to funds with flexibility and lower interest rates, making it an attractive option for homeowners ready to turn their dreams into reality.
The opinions expressed herein are those of the authors and do not necessarily reflect those of Eastern Bankshares, Inc., Eastern Bank, or any affiliated entities. Views and opinions expressed are current as of the date appearing on this material; all views and opinions herein are subject to change without notice. These views and opinions should not be construed as any specific recommendation. This material is for your private information and we are not soliciting any action based on it. The information in this content has been obtained from sources believed to be reliable but its accuracy is not guaranteed. There is neither representation nor warranty as to the accuracy of, nor liability for any decisions made based on such information.