If you have equity in your home – defined by the difference between the appraised value of your property and your mortgage balance – you’re in position to borrow a portion of it via a home equity line of credit (HELOC).
To better understand how a home equity line of credit works, contact three to five lenders to learn more about the application process and whether you qualify.
If approved, your lender will extend you a line of credit, which you can use in the same manner as a credit card, for a fixed period of time, usually 10 years.
While there are many benefits of a home equity line of credit, such as an interest rate that’s typically lower than other types of loans, you should answer a few key questions before deciding in favor of it.
1. How do you plan on using the home equity line of credit?
There’s no point in borrowing money if you don’t know how you’ll use it. Some of the most common ways to use a home equity line of credit include:
- Home renovation projects
- Educational expenses
- Medical debt
- Once in a lifetime trip
- Wedding expenses
Once you know how you’ll use the funds from a home equity line of credit, you can compare it to other types of loans to determine if it’s the right choice.
2. What’s the cost of borrowing money?
Since a home equity line of credit is secured by your home, you’re likely to qualify for a lower rate than other types of loans, such as a personal loan.
Request a rate quote from your lender and then compare it to other types of loans. This will give you a clear idea of whether or not it’s competitive and if you should consider other options, such as a credit card.
3. Can you use a home equity line of credit to consolidate debt?
Don’t get caught thinking that a home equity line of credit is only for making a purchase or paying a bill. You can also use it to consolidate debt.
For example, if you have multiple credit card balances, you can bring the debt under one roof with a home equity line of credit. This helps you better organize your debt, while also lowering your monthly cost.
The Decision is Yours
Some people find that a home equity line of credit is just what they need to get their finances back on track. Others are intrigued, but decide to hold off for the time being.
If you’re considering a home equity line of credit, request more information from a reputable lender and then slowly move through the process.
If you like everything a home equity line of credit can do for you, it may be time to sign on the dotted line.