For most homeowners, you’ll inevitably need to tackle a large, expensive home improvement someday. Whether it’s time for a new roof or you decide to remodel your kitchen, these projects can cost tens of thousands of dollars, and you may not have that kind of money in your savings account.
That’s where a home equity line of credit can help. A home equity line of credit—HELOC for short—is a line of credit you take out against the equity you already have in your home. A HELOC can offer a lifeline for homeowners when they need to pay for a costly renovation or other expenses.
How does a home equity line of credit work?
As you pay your mortgage each month, you build equity in your home. With a home equity line of credit, you tap into that equity by borrowing against it and then repaying what you borrow.
A HELOC is similar to a credit card: Both provide a revolving line of credit where you can borrow up to a certain amount and repay within a certain timeframe. One benefit of a HELOC compared to a traditional credit card is that it typically offers a lower interest rate—plus, the interest may be tax-deductible if you use your credit for home improvements, according to LendingTree.
Home equity loan vs. line of credit
Similar to a HELOC, a home equity loan is secured by the equity in your home, according to the Federal Trade Commission. But unlike a HELOC, which offers a revolving line of credit, a home equity loan is offered in one lump sum; you pay it back in regular installments like a second mortgage. With a HELOC, you only pay back what you borrow.
When to take advantage of a HELOC
You might think a home equity loan is only meant for home improvements, but you can use it for any expense, like paying for college, taking a vacation or covering large medical bills.
Just remember that if you don’t pay down your debt according to the terms of your HELOC, it could lead to foreclosure on your home in some extreme circumstances.
Wondering if a home equity line of credit is right for you? Learn more and start your HELOC application at WaterStone Bank today.