Owning a home isn’t just about having a roof over your head—it’s also about being able to utilize your home’s equity. Your home’s equity is a powerful financial tool that you can leverage in many different scenarios. In this blog, we will dive into understanding your home’s equity, the basics of a Home Equity Line of Credit, and how these tools can help your unique situation.
Understanding Your Home’s Equity
Your home’s equity is your home’s value minus the amount owed on your home. For example, if your home is valued at $400,000, but you have $320,000 left to pay on outstanding mortgage(s), your home’s equity would be $80,000. As you pay down your mortgage, and as the value of your home appreciates, your home’s equity also grows.
What Is a Home Equity Line of Credit?
A Home Equity Line of Credit (HELOC) is a second mortgage that allows you to access your home’s equity as cash to help fund anything from home improvement projects to starting a business. A HELOC works in these simple steps:
- Qualification: An Auburn Savings Lender will look at your debt-to-income ratio, credit history, and loan-to-value ratio to determine qualification.
- Draw Period: During the draw period of your HELOC (typically 10 years), you have open access to funds to borrow with interest. Interest-only payments are required to cover the interest accrued on the outstanding balance; you only pay interest on the amount you’ve drawn.
- Repayment Period: After your draw period concludes, you will begin the repayment period. The repayment period includes principal and interest.
Why Get a HELOC?
A HELOC is a powerful tool for homeowners in a variety of situations. Many homeowners use HELOCs to fund home renovations, consolidate debt, pay for education, or use it as an emergency fund. Some benefits of getting a HELOC include:
- Flexibility — You can borrow what you need, when you need it. You are only billed for the amount of interest due on the amount you have drawn.
- Quick Access — After closing on your HELOC, you can have access to your funds in a few days.
- Lower Interest Rates — HELOCs typically have lower interest rates in comparison to credit cards or other personal loans. This helps you save money compared to other credit options.
Alternatives to a HELOC
HELOCs work great for many people, however, some might desire alternative solutions. Providing solutions to your unique scenarios is what our Auburn Savings Lenders are here to do. Some solutions could include our Home Equity Loan (HELoan).
Home equity loans differ from lines of credit as they provide a lump sum after closing and have fixed interest rates. HELoans are recommended for when you need to make one big purchase or to consolidate a larger debt.
Speak With an Auburn Savings Lender
Understanding your home’s equity is a fundamental principle for homeownership and leveraging it can be a powerful tool. We are here to help you! Come to one of our branches and speak with our Auburn Savings lending team to help your unique situation. Click here to contact us today.