Is a Home Equity Line of Credit Right for You?

As you put money into your home, you begin to build equity. This gives you the flexibility to consider unique options if you want to fund certain expenses.

A home equity loan or home equity line of credit (HELOC) is a way to use the value you’ve created in your home to fund high-cost expenses, like home renovations or debt consolidation, but it’s not always right for everyone. Here are a few questions to consider when you’re deciding if a Home Equity Line Of Credit (HELOC) is the right option for you.

HELOC vs Home Equity Loan?

Home Equity Loans and HELOCs are very similar but are just structured differently. Both loans allow you to leverage the equity you have built in your home. A Home Equity Loan allows you to take one lump sum loan with a fixed interest rate and fixed payment. This is a great option if you know exactly how much you need and you’re prepared to begin repayment immediately. A HELOC is more flexible. A HELOC is a line of credit based on the equity you have in your home. This is a great option if you’re unsure about how much you want to borrow and don’t want to borrow more than necessary. For instance, if you qualify for a $25,000 HELOC, but you think you’ll only need $10,000-$15,000 for your home renovation, then you can just withdraw what you need when you need it, and you never have to reach the $25,000 maximum.

It’s best to decide which option is good for you based on your project and unique needs.

Do You Have Equity in Your Home?

In order to take out a HELOC, you’ll need enough equity in your home. If your home is worth more than your current loan, then you have equity. If your home is less than your mortgage, then this is not an option. For instance, if you owe $150,000 on your mortgage, and your home is appraised at $200,000, then you have $50,000 in equity available to leverage.

How Do You Want to Use Your Loan?

Although you can use your Home Equity Loan or HELOC for anything you choose, it’s best to use the funds wisely. You’re using the equity available in your home, so it’s safest to choose expenses that will make a positive financial impact. For instance, home renovations are a great investment because they can increase the value of your home. So, even though you’re using some equity to finance the project, the end result is that your home could be worth more. Similarly, if you consolidate high-interest credit card debt you’re increasing your monthly cash flow because you’ll be saving on interest expenses. However, using the funds for a dream vacation, wedding, or even college expenses can be riskier.

Can You Afford to Make Your Loan Payments?

Once it’s time to make your loan payments, will you be able to afford them? Find out how much your monthly payment will be before you take the loan or draw against your HELOC. Just because the renovation you want costs $25,000 doesn’t mean you can afford a monthly payment on a $25,000 loan. Get all the information before you make a decision.

If you are considering a HELOC, now is a great time to apply. Right now, we have a HELOC Special for new and existing lines of credit. To learn more, visit our website at KitsapCU.org/HELOCSpecial or call a Member Specialist today at 800–422–5852.