Should You Seek A Home Equity Line of Credit?

6/12/2018

Sometimes you need money to cover essential expenses but just don’t have it in the bank. However, you could have value in your home, and that’s when a home equity line of credit (HELOC) might just start to make sense.

What is a HELOC?

A HELOC is a type of second mortgage that borrows against the value stored in your home. When you take one out, you’ll be given access to a pool of cash that essentially acts much like a credit card. You’ll receive a spending limit that usually covers up to 85% of your property’s value, minus the balance remaining on the mortgage.

You’ll be able to borrow against that spending limit as often as you need to, so HELOCs are like home equity loans but with more flexibility.

How Do You Get a HELOC?

Applying for a HELOC is much like applying for a primary mortgage. Your lender will need to find out:

  • How much equity you have in your home
  • The home’s appraised value
  • How much money you earn
  • What your outstanding debts are
  • Your credit score

As a general rule, you’ll likely need:

  • A credit score of 620 or higher
  • Home value of 10% to 20% more than you owe
  • Debt-to-income ratio in the lower 40s or less

Why Should You Take Out a HELOC?

A home equity line of credit can be a great way to consolidate existing debt into one monthly payment — this makes your repayments easier to track and usually means paying lower overall interest rates. In fact, most lenders don’t make you pay on the principal each month. That means that you have the option of paying only the interest payments until your finances recover.

Better yet, the IRS allows homeowners to claim interest paid on a HELOC as a tax deductible. If you keep meeting your payments, you can use a home equity line of credit to improve your credit score.

Learn More About Home Equity Loans and HELOCs

Here at Town and Country Bank and Peoples Prosperity Bank, we handle everything from personal loans to home loans, and we’re always available to provide advice and assistance. Simply visit your local branch today — you’ll find us in Fairview Heights, Edwardsville, Bloomington, and throughout Central Illinois.

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