The equity in your home is often the lowest cost and most convenient source of funds available when you need to pay for things like a new car, home renovation, college education or other purchase where you’d normally apply for financing or a loan from a bank.
A home equity line of credit (commonly referred to as a HELOC) is a loan from a bank, secured by the equity you’ve built up in your home. The interest rates on HELOC’s are often far below what you’d pay on a credit card or through a bank loan. Additionally, HELOC’s are usually established as lines of credit – meaning the funds are always available to you, but you only pay interest on the amount of funds you actually used. For example, a bank may offer you a $50,000 HELOC – those funds are available to you for whatever you need, whenever you need it. If you don’t use it, you don’t pay any interest.
When considering a HELOC, it’s important to carefully compare rates and terms between banks. Some banks have appraisal fees and other costs you may incur up front; other banks might waive those fees but have a slightly higher interest rate. Make sure you use a reputable lender and review the terms of the loan carefully.