Home values are soaring, and it’s all thanks to a perfect storm of factors that have combined to make home prices rise at the fastest pace in 15 years. With some of the lowest mortgage rates in history, a shortage of materials for new construction, and fierce competition amongst new homebuyers, there’s no doubt that it’s a seller’s market. And if you’re a homeowner, it could mean it’s the right time for you to consider a home equity line of credit (HELOC).
A HELOC is a line of credit secured by your home, with the equity of your home serving as collateral. In 2020, the average homeowner saw their home equity rise year-over-year, according to BusinessWire. This means that you’ll have a larger financial cushion available thanks to that increased equity.
Learn more about HELOCs and why you should consider one to help with your home projects.
A home equity line of credit is a type of home equity loan in which you borrow against your home. Because HELOCs use your home as collateral, they can generally provide a more competitive interest rate than other types of credit lines.
But instead of receiving a lump sum, like with other types of home equity loans, you receive a revolving line of credit that functions much like a credit card. As you pay off your outstanding balance, your line of credit is replenished.
You will generally have a fixed borrowing period, also known as the draw period. It typically lasts 5 or 10 years, and you may be able to renew at the end of the period. Throughout the draw period, many lenders only require a small, interest-only payment.
After the draw period ends, the repayment period begins, which generally lasts 20 years. From then on, you’re paying off the principal (the loan amount) plus interest.
HELOCs are popular choices when you need some extra cash -- for any reason. Not only do they often have lower interest rates, but that interest may be tax-deductible* in some cases. And HELOCs are very flexible when it comes to borrowing, repayment, and even what you can use the money for.
When considering a HELOC, be sure to weigh the benefits against the potential disadvantages to be sure you aren’t undertaking any unnecessary financial risks. Remember that failure to repay the amounts you’ve borrowed, plus interest, could mean losing your home.
As a homeowner, you’ve likely worked hard to build up the equity in your home over the length of your mortgage. And the hot housing market is only helping. The average homeowner’s home equity rose by $23,600 in 2020 compared to the year before. In some states, such as Colorado and Arizona, that average equity increased even more: $32,000 (CO) and $36,000 (AZ).
A higher home value is great, especially if you’re looking to sell your house. But what if you’re perfectly happy in your home? How can you put that increased equity to work for you? That’s where a home equity line of credit can come into play.
When a homeowner applies for a HELOC, they are approved for a specific amount of credit by the lender. How is this credit amount set? Many lenders take a percentage of your home’s appraised value; then, they subtract from the amount you owe on the existing mortgage.
Having increased equity in your home means that you could be approved for a higher amount of credit than you would be if the market were different. For this reason, if you’ve been thinking about getting a HELOC, now could be the right time.
Because a HELOC means borrowing against your home -- most people’s biggest asset -- many homeowners choose to use HELOCs for large home renovation projects. This is also one instance where the interest is tax-deductible*.
Home renovation projects can be expensive, but they’re something that’s on many people’s minds in the months since the pandemic.
Most of us have spent more time at home in the past year than we ever have before. For many of us, it’s now become our office as well as the classroom for our kids. And after that much time in the house, almost all of us can think of a few things we’d like to change about our homes if we had the chance.
With higher home values, you’re able to take out more money for the projects of your dreams. And not only that, but you can feel confident about your potential to get a return on your investment.
Updating your kitchen with granite countertops and new appliances is sure to make you happier and more comfortable in your space. But it’s doing more than that -- it’s also continuing to add more value to your home. Someday, if or when you’re ready to sell it, your home will have a better chance of selling more quickly and for more money thanks to your renovation projects.
Academy Bank offers HELOCs so you can get the cash you need when you need it. You can access as little or as much of your credit line as you like and use the funds for whatever you need -- a kitchen remodel, debt consolidation, education expenses, a major purchase, a financial reserve for unexpected expenses, and more.
Features of Academy Bank home equity lines of credit include:
*Subject to credit approval.
*Consult a tax advisor about deductibility.