You’ve probably heard the term HELOC before and you may even know what it stands for - Home Equity Line of Credit - but do you know what it actually is? A HELOC is a line of credit that allows you to use the equity in your home in order to receive a loan. With a HELOC, you receive a promise from a lender to advance you up to a certain amount of money. A typical loan is for a set amount and set period of time. A HELOC is open-ended, meaning you can choose to advance on the loan at any time during the draw period, Valley’s is for 10 years, and how much you would like to borrow within the limit. Once your HELOC is closed and funded, you can begin to draw on those funds. You can also use your HELOC for a wide variety of purposes such as home improvement projects or debt consolidation.
In order to determine how much you may be eligible to borrow, you must first determine the loan-to-value of your home. General guidelines recommend borrowing up to 80% of the loan-to-value of your home. You may be able to borrow more, but it could affect your interest rate. For example, if your home is worth $300,000 and you owe $150,000, you would be eligible for up to $90,000. To do this calculation for yourself, take the value of your home and reduce it by 80% or .80. Then, subtract the amount you currently owe on your home and that is the amount for which you could be eligible!
There are many benefits of a HELOC loan, including low closing costs, possible tax deductions on interest payments and the ability to use the money for almost any purpose. HELOC loans often carry lower interest rates than other types of loans such as credit cards or personal loans. This means they are a good option for debt consolidation or home improvement projects. Plus, if you get your HELOC from Valley, your loan will always stay with us and it will never be sold!
Now the final question you might have is what your payment on this HELOC is going to be. Your payment will be 1-1.5% of the amount you have borrowed or $100, whichever is greater from the time of the last advance. So, let’s say you borrow $20,000 of your $90,000 limit. Your payment will be 1% of that $20,000, or $200 per month until it is paid back. Valley recommends always paying more than your minimum payment though. That way, you are able to pay off the loan early and save on interest!
If you’re interested in a HELOC, visit with one of our friendly and professional lenders today!