What you should know about home equity lines of credit
Many people are looking at doing home renovations right now – especially since spending so much time at home due to the pandemic. As a result, people are exploring different ways of financing those renovations. One common way of financing home renovations is a home equity line of credit, or HELOC. Home renovations can be exciting, but it is so important to be sure that the expense fits within your budget before getting started.
What is a home equity line of credit?
A home equity line of credit is a source of revolving credit with a set limit, which is secured against your house. This means that your house is used as collateral for the loan. In order to qualify for a home equity line of credit, you must have equity in your home. Equity in your home is the difference between the market value and any mortgages or debts already secured against the house. A HELOC will include two periods: the draw period and the repayment period. Combined, these two periods typically last 25 – 30 years. During the draw period, which typically lasts 5 – 10 years, only interest is due on the borrowing. During the repayment period, which typically lasts 10 – 20 years, both principal and interest must be paid each month.
What are the benefits of a home equity line of credit?