HELOC 101 - Home Equity Lines of Credit

While all homeowners dream about the improvements they want to make to their home in the future, frequently tight budgets and overloaded credit cards prevent those dreams from becoming realities.  Back in March we wrote an article called, "How to Pay for Your Brand New Bathroom" which has become one of our most read blog posts.  While we touched on Home Equity Lines of Credit - HELOCs briefly, over the past several months our Diamond Bath team has received more questions about this common method for financing home improvements.  To help address some of the most common questions we receive, we want to provide a brief introduction to HELOC, your Home Equity Line of Credit. 

1. What is Home Equity?: At the most basic level, home equity is the positive difference between what the value of your home is versus what is owed.  If your home is appraised at $200,000 and your mortgage balance is $100,000, you have approximately $100,000 in available equity.  According to a HuffPo article released this week titled, The Best and Worst Ways to Use Home Equity, last year Americans had $14.4 Trillion dollars in untapped home equity in 2018.  

2. What is a Line of Credit?: Lines of credit are most commonly extended by a bank, credit union or other financial institution that enable the recipient to draw funds as needed within a given maximum amount. Lines of credit can be unsecured with simply a signature or secured with some tangible assets (house, car, business, etc.).   

3. What is a Home Equity Line of Credit (HELOC)?: If you have positive equity in your home, you can leverage that equity by either taking a second mortgage for fixed period of time (also known as a home equity loan) or by establishing a HELOC. A Home Equity Line of Credit allows you to borrow and payback repeatedly, much like a credit card.  Many HELOC actually provide debt cards and checks that can be used for payment, but with interest rates significantly below what most unsecured credit cards would charge.  Even better, according to this Wall Street Journal article, interest on your loan is tax deductible up to $100,000. 

As mentioned in the recent HuffPo article above, one of the best uses for HELOCs are high value home remodeling projects!  So check with your bank or financial adviser about establishing a HELOC to leverage your positive home equityand then Contact our Diamond Bath team in Crystal Lake to discuss the details of your dream bathroom!