What Is A HELOC?

And How Can They Help You Utilize Your Home’s Equity?

What do you do if you need funds for investment, renovations, tuition, transportation, or any other reason? Do you get a credit card or is there something better? If you’re a homeowner, you may consider a home equity line of credit, or HELOC. In this week’s video, Jamie Cavanaugh explains what a HELOC is and who should consider getting one. As always, if you have any questions, give us a call!

Transcript:

Hi everyone. It’s Jamie with Amerifund. Today we are going to talk about HELOCs. What is a HELOC? HELOC stands for a Home Equity Line of Credit, and it is a line of credit that’s secured against your home. Helocs function sort of like credit cards. Just imagine having a very large credit card that is attached to your property. 

 There are a few things you should know about home equity lines. The first is that they are almost always adjustable based on a fixed margin, which never changes but added to the prime rate. The prime rate does fluctuate with the market.   

The second thing you should know about helocs is that they have a lifetime cap, which means that your interest rate can only ever go up to a certain point, and then it caps out. But unlike other adjustable-rate mortgages, home equity lines usually don’t have a limit as to how often or how much the rate can increase. This means that in the event the market worsened significantly, it is possible that your equity line rate could shoot all the way up to your lifetime cap without any warning.  

That may sound scary, but there’s one other thing you should know about helocs. They’re actually fantastic for folks who don’t need to use the entire balance all at once. If you’re looking to take advantage of the equity in your home while home values are at all time highs, maybe to do some home improvements or investments, and you don’t need all of the cash now, a home equity line might be a great option for you. You only pay on the amount of the line that you’ve used. So for example, if you have a $100,000 line of credit, but you’ve only used $25,000 of that, you’re only paying interest on that $25,000 balance. 

I hope this helps to answer your questions about equity lines. Thanks for watching, and have a great day.