Unlocking Home Equity: Is a HELOC Right For You?
Spring is in the air and if you’re the parent of a college-bound student, then you may be eagerly awaiting college acceptance letters. With the excitement also comes the anticipation and concern of paying for college tuition.
If you’re looking for financial solutions to help pay for college, a Home Equity Line of Credit (HELOC) may be a viable financing tool for homeowners. Other considerations for using a HELOC might include planning for unexpected expenses, consolidating debt, or financing home improvement projects including remodeling, or installing a pool.
A HELOC is a revolving line of credit that allows homeowners to borrow a specified percentage of their home equity—the value of their home minus the amount owed on the mortgage—using their home as collateral.
Bank of Marin’s Roseville Branch Manager Steven Crain shares a few key points for homeowners to take into account when considering a HELOC:
- Variable interest rates: Many HELOCs have variable interest rates, meaning that as interest rates change, so can monthly payments. These fluctuations can result in higher payments when rates go up and lower payments when rates go down. Consult your banker about possible payment examples.
- Understand repayment terms: HELOCs offer flexibility in both the draw and repayment periods. Talk to your banker about the benefits and potential drawbacks of each.
- Lender variations: Many financial institutions only provide HELOCs on a primary residence, while others—like Bank of Marin, offer HELOCs on primary, secondary, or investment properties. Confirm offerings with your financial services provider.
- Collateral damage: Because HELOCs are secured using your home as collateral, it’s crucial to understand that your lender can foreclose on your property if you stop making payments.
- Discounts: Ask your lender if there are any discounts or programs you can benefit from. Automatic payments or introductory fixed rates, for example, can lower your interest rate and possibly save you money in the long run.
