Home Equity Line of Credit
Use the Equity in Your Home Without Refinancing
Don't Refinance
A home equity line of credit may be the answer. Don't refinance your low interest rate mortgage just to take equity out of your house. With mortgage interest rates being much higher today, refinancing could increase your mortgage payment significantly. Instead, use a home equity line of credit and keep your low rate first mortgage.
Home Equity Line of Credit
A home equity line of credit (HELOC) is a revolving form of
credit secured by your home. You can borrow as little or as
much as you need, up to your approved credit line, and you pay
interest only on the amount that you borrow. You can take
advantage of flexible repayment terms, and you can use the
credit again as you pay down the balance. However, be aware that
the interest rates on home equity loans are not fixed and float
with prime rate.
HELOCs are similar to
credit cards in that they offer revolving lines of credit that
you can access when needed. The difference with a HELOC is that
your house is used as collateral to secure the credit line, and
the amount you’re approved for is based on the equity you have
in your home. HELOCs are available from many banks and
financial institutions. The payment schedule and amount depend
on the type of HELOC.
Interest Rates on Home Equity Loans
Interest rates on home equity loans are typically a few percentage points above rates for a first mortgage loan. But, the rate is signifcantly lower than credit card rates that range from 18% to 29%.
Risk
A lender will grant a home equity loan based on the value of your house, less the amount of the first mortgage. Home equity loans are like credit cards. You can borrow up to the limit of the loan and then pay the loan down and borrow again. However, if you default on a home equity loan, you risk losing your home. Therefore, it's essential to make sure you can afford the monthly payments before taking out a home equity loan.