Position your largest asset with a line of credit to help you through an unexpected financial obligation.
A Line of Credit Supported by Your Home Equity
If you need a line of credit for emergency expenses like home repairs or medical bills, you could use high-interest credit cards or other forms of high-rate lending. A better option, however, may be to leverage your home’s equity through the use of a Home Equity Line of Credit, best known as a “HELOC.”
A HELOC is not a loan for a specific amount, but rather a line of credit from which you can draw as needed. It usually has a draw period, which may last five to ten years, then a repayment period, which can last around 20 years.
Using a HELOC, you can fund a wide variety of purchases and investments. Many homeowners like to keep a HELOC ready for home-improvement purchases, including remodeling and repairs. It can also be used for emergency vehicle repairs, medical costs, and other unexpected but inevitable expenses.
The main benefit of a HELOC is that you can withdraw as needed and only repay what you withdraw. You may be approved for a line of credit for $100,000 (for example), but if you only need $50,000, you’ll only repay (and pay interest on) that amount.
To use a HELOC, you’ll need to meet a variety of requirements. Your current mortgage will need to be current, with no delinquent payments and a consistent payment history. You’ll also need strong equity, but the specifics will depend on the lender.
Because a HELOC is secured by your personal home, you can secure better terms than other lines of credit. Compared to credit cards, you may be able to enjoy significantly lower interest rates, among other benefits.