What is a HELOC? Your Home's Equity Explained
A HELOC is a flexible low-cost loan that leverages the value of your home.
A Home Equity Line of Credit, or HELOC for short, gives you the flexibility to borrow against the value of your home to finance home renovations, educational expenses, or debt consolidation.
As UMCU’s Financial Education Manager, Mark Munzenberger explains, the key definition of a HELOC is home equity.
To calculate equity, take the current market value of your home and subtract the outstanding mortgage balance, with the resulting figure being your home equity. That is one of the key factors that determines your credit limit.
Some of the most popular reasons people use a HELOC are for large home expenses, such as major home renovations; debt consolidations, paying off high-interest debt on credit cards or unsecured personal loans; and educational expenses, paying for tuition or making student loan payments.
HELOCs are advantageous because since your home serves as collateral, interest rates tend to be lower than unsecured credit cards or personal loans. The interest you pay on a HELOC could be tax-deductible. And HELOCs are flexible lines of credit; you can use as much or a little of that line of credit as you wish. And repayment is only based on any outstanding balance that you have.
A HELOC can be a very valuable option for individuals considering major home improvements or paying down high-interest debt. UMCU has experienced loan representatives that can answer your questions and help you determine if a HELOC could be a good fit for you and your financial situation.
Have questions about HELOCs? Want to know more about maximizing your finances?