One of the many benefits of home ownership is the ability to tap into your home’s equity if and when you need it. Homeowners can use their equity in a number of ways, from paying off debt to making home repairs.
One of the most popular approaches for accessing a home’s equity is through using a home equity line of credit, or HELOC. HELOCs are offered by many financial institutions and can have varying interest rates based on several factors, such as how much equity you have and your creditworthiness.
At Riverview Bank, the HELOC program is straightforward and offers competitive rates for clients in Washington and Oregon. Continue reading for more information about HELOCs, their benefits, how you can use the money from your home equity line of credit, and how to find the best HELOC rates in your area.
What Is Home Equity?
The amount of your home equity is the value of a home minus the debt still owed to the mortgage lender for the property. For example, if your home is valued at $350,000 and you still owe your lender $250,000, your home equity will be the difference between those two values: $100,000.
Equity builds when you make payments against your loan principal or when the value of your home increases. Some or even all of this money can be accessed through options like a home equity loan or HELOC, to name a few.
Let’s take a closer look at how HELOCs work.
What Is a HELOC?
A HELOC is a line of credit drawn against the equity you have in your home. Most lenders allow homeowners to borrow at least 80 percent of their home’s equity with a HELOC, with some allowing for more. Riverview Bank allows up to 85 percent. So, if your home has $100,000 in equity, 85 percent would mean you could access up to $85,000.
The best way to calculate exactly how much equity you have available to borrow is to contact your mortgage lender directly. This amount may be lower or higher than you expect, depending on factors such as whether the value of your home has risen. If your home’s value has risen since you purchased it, due to the market or upgrades, your equity will likely have increased as well. Clients of Riverview Bank can stop by any of our 17 branch locations to speak with one of our lending specialists about how much equity they have and how they can use that equity.
Once an amount has been approved for a HELOC, portions of that money can be borrowed as needed, repaid, and then borrowed again for the length of the draw period. Most lenders offer HELOC debit cards or checkbooks, allowing you to access your equity whenever and for whatever makes the most sense for your budget and goals.
You will only have to repay the amount of money you actually borrow, and you’ll also only pay interest on that borrowed amount, not on the full amount approved.
How Can I Use My HELOC?
When you are approved for a HELOC, the possibilities for how you spend that money are almost unlimited. One popular option is using your home equity to consolidate debt. Rates for HELOCs tend to be lower than credit card or personal loan interest rates, so consolidating debts with varying interest rates under one lower rate via your HELOC can make a lot of sense for homeowners.
Reinvesting your equity in your home through repairs or updates is another common use of HELOC funds because those investments can increase your home’s value. That, in turn, increases the amount of equity you have in your home.
HELOCs also can be used to cover unexpected expenses, such as medical bills or major car repairs, or supplement your emergency fund if you’re going through a financial crisis, such as losing your job. Homeowners also can use HELOC money for large purchases they would otherwise need to use a credit card or personal loan for. You can even use a HELOC to pay for a dream vacation or make a down payment on a second home.Repaying Your HELOC
During the draw period, you typically will be required to make monthly payments against the interest on the amount you’ve borrowed. You don’t have to repay the borrowed amount at this point, but you have the option to do so. Repay a portion of the principal you’ve borrowed, and then borrow that money again when you need it later. After the draw period, the HELOC enters its repayment period.
Payment amounts during the repayment period will vary depending on how much you borrowed, your interest rate, and the length of the term of the loan. Terms vary by lender, but most HELOCs last 30 years, with a 10-year draw period and a 20-year repayment period. That is the HELOC term at Riverview Bank.
Keep in mind that if you sell your home before your HELOC is paid off, you will need to repay the remaining amount you owe when the sale of your home is finalized.
Where to Get the Best HELOC?
Your home equity is a significant asset. Finding the right financial institution to issue a line of credit from your home’s equity should be a top priority. Do your research on the best HELOC rates and benefits available so you can make an informed decision. Sit down with your Riverview specialist to talk about how much equity you have available and how much money you need for your home renovation project, large purchase, or unexpected expense. Crunch the numbers to ensure the payments will fit into your budget.
Your best move will be to work with a local lender you can trust, such as Riverview Bank. We have been serving our communities for more than 100 years, making us experts at helping our clients become homeowners and tap into their home equity. Riverview Bank’s HELOC application process is easy and can be complete online.
Opening a HELOC account to borrow against your equity is one way homeowners across the Pacific Northwest are building better financial futures for themselves and their families. When you’re ready to open your home equity line of credit, Riverview Bank is here to guide you through the process. Learn how much equity you have and if a HELOC is right for you.