Tapping into your home’s equity can be a good way to access quick cash to pay for more than just renovations on your home. HELOCs can help you improve your financial picture if done properly. It’s important to proceed with caution when borrowing money against your home; however, keep in mind that HELOCs are only to be used on expenses that are not associated with business or business loans. Learn more about how a home equity line of credit can help you reinvest in your future with Members Exchange Credit Union.
What is Home Equity?
Home equity is the portion of your home that you have already paid off. It’s the difference between what the home is worth and how much is still owed on your mortgage. For many Americans, equity from homeownership is a key way to build personal wealth over time. As your home’s value increases, over the long term and you pay down the principal on the mortgage, your equity grows.
How to Access Your Home’s Equity
The most common ways to access the equity of your home are home equity lines of credit (HELOCs) and home equity loans. A HELOC is a variable-rate home equity loan that works like a credit card. With a HELOC, you’re given a line of credit that’s available for a predetermined time frame. During this draw period, which usually lasts around 10 years, you can use the money as needed and make interest-only payments. After the draw period expires, you must begin repaying whatever you borrowed over the next 10 to 20 years.
To tap into your home’s equity through a HELOC loan, you’ll need to go through a process similar to obtaining a mortgage. At Members Exchange Credit Union, we’ll determine the current value of your home, verify your personal profile, and then coordinate closing if your application is approved!
7 Reasons Why You Should Get a HELOC
Tapping into your home equity can be a convenient, low-cost way to borrow large sums of money at favorable interest rates to pay for home repairs or debt consolidation. There are not many limits on how you can use your home equity, but there are a few good ways to make the most of your loan or line of credit. Here’s why you should take advantage of a HELOC with Members Exchange Credit Union:
1. You Can Borrow Large Amounts of Money
While a credit card may set your credit limit at a few thousand dollars, a HELOC’s upper limit typically equates to about 80% of your home’s value minus the balance owed to the mortgage holder. On a home valued at $400,000, with $200,000 still outstanding, that figure could be as high as $160,000.
2. You Can Decide When and How to Use Your Funds
Once you open your home equity line of credit, you have access to your credit line’s full amount. You can use what you need, but your payments are based only on what you actually use. If you need $20,000 of your $140,000 available, for example, payments are calculated on the $20,000, not the other $120,000 that you haven’t touched.
3. Interest Rates on HELOC Loans are Lower than Credit Card Rates
Credit cards tend to have higher interest rates because they are unsecured debt. With your home’s equity serving as collateral, home equity lines of credit usually come with lower rates than what you’d pay on most cards – a real advantage when you take into account the higher sums of loaned money involved.
4. HELOC Interest is Tax-Deductible
For example, if you need $50,000 to add an in-law suite to your home, the resulting $2,000 or so in interest could go toward your itemized tax deductions. Always consult your tax professional to see what applies to your specific situation.
5. You Can Consolidate Debt Easier
The higher amounts of credit available with a HELOC, the lower interest rates. The longer draw and repayment terms eliminate the problem of multiple high-interest credit card debt.
6. You Can Use Heloc to Pay Large-Term Debts
Financial timing can be an issue for large expenditures even though you know they’re inevitable. For example, you may have money set aside for an expense, but you just don’t have access to it yet without penalties. An IRA for example, is not tax-deductible. A HELOC could help you pay tuition now, and then pay off the HELOC when you have access to other funds, without penalties.
7. You Can Handle Multiple Expenses Over the Draw Period
One month, you may need $8,000 to pay medical expenses. Six months later, you may need another $13,000 for a new roof. A year later, you may need another $4,000 for an engine overhaul. A HELOC comes with disbursement options that let you pay for whatever you need.
Get a Home Equity Line of Credit at Members Exchange Credit Union in Jackson, MS
Being a member at Members Exchange Credit Union comes with perks! Our HELOC plan offers a discounted rate for the first 6 months, convenient check writing, and interest-only payment options for qualified lines. Interested in borrowing against your home’s equity? Apply for a HELOC with Members Exchange Credit Union today! MECU proudly serves Jackson, Byram, and Pearl, MS. Contact us today to get started!