Is a home equity line of credit (HELOC) right for you?

January 10, 2020

If you are a homeowner looking for a loan that provides flexibility and a competitive interest rate, this option is worth exploring.

 

If you own a home and need a loan, you may be in luck. If your home is worth more than what you owe on your mortgage and you’re looking to stay a while, then a home equity line of credit could be a good option.

 

What is a home equity line of credit?

A home equity line of credit (HELOC) lets you borrow money using the equity in your home as collateral, essentially making it a second mortgage. Equity is the difference between the current value of your home and what you still owe on your mortgage. Depending on how much equity you have in your home will determine how much HELOC you’re qualified for.

Using your home equity, a HELOC gives you a line of credit, up to a limit, that you can use as you see fit. A HELOC is different than a home equity loan, which comes as a lump sum. With a HELOC, you can spend as much of it as you like, the same way you would use a credit card.

 

Why would I choose a HELOC?

A HELOC can be a sensible choice when used responsibly. Some of the benefits of a HELOC include:

  • Convenience: You can borrow money when you need it, without having to reapply.
  • Lower interest: Interest rates tend to be lower than credit cards and unsecured loans.
  • Potential tax1 savings: Your interest payments might be tax-deductible, though new tax rules about HELOCs each year can differ. Work with your tax advisor to address how a HELOC might affect your tax strategy.

 

What do I need to know when choosing a HELOC? 

  • Terms: Most plans have set periods during which you can take a draw from your credit line. You should understand these before you commit.
  • Credit limit: Typically, your lender will determine this number by looking at your income, debts and other financial history. They want to ensure you will be able to pay back the loan. 
  • Rate options: There are both variable and fixed-rate options available. Research both types and find out how much and how often your rates might change on a variable plan. This will help you select the best choice for your situation. 
  • How to access your money: Most lenders will provide you with special checks or credit cards to draw from your home equity line of credit.

 

Why would I consider not getting a HELOC?

  • If you plan to move soon. You’ll need to pay back your home equity line of credit when you sell your house. 
  • If you’re not able to afford the payments. It’s never a good idea to borrow beyond your means, but it’s especially important to remember that a HELOC uses your home as collateral.

 

How can I use the money from my HELOC?

You can use your HELOC funds to finance a variety of needs, such as major education or medical expenses, smaller purchases or home improvements. And, just in case emergencies arise, your HELOC money can help you there, too.

 

Learn more and apply for a HELOC.

 

 

U.S. Bank, U.S. Bancorp Investments and their representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.

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Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.