If you own a home, the equity in your home is the difference between what you owe on the property and the value of the real estate. If you have equity, you can use it to secure a HELOC (Home Equity Line of Credit).
This form of credit is a revolving credit that allows you to borrow against the value of your home. You are free to use it for anything you like, and you can repay the full amount at any time. Interest is charged and is automatically removed from your banking account.
What Are the Advantages and Disadvantages of Borrowing From My Home Equity?
Home equity lines of credit are very popular because they have lower interest rates when compared with credit cards and other forms of unsecured financing. Also, since they are a revolving form of credit, they can be used as needed to pay for home renovations, school costs, everyday expenses and other uses. Due to their low-interest rates, they are a popular choice for debt consolidation as well. Unlike other forms of financing and credit, a HELOC also offers a modest tax advantage as the interest is typically tax-deductible.
While a HELOC has many advantages, there are also drawbacks. You need to have a home with equity to qualify, and only part of your home’s equity can be used. In addition, you are borrowing against the value of your home, which may be your largest asset.
If your home’s value decreases or interest rates go up, a HELOC may not be as affordable as it initially seemed to be. It is possible to end up underwater in debt, which is why it is best to borrow conservatively against your home equity and pay back the amount you owe as quickly as possible. When used responsibly, though, a home equity line of credit can help your finances. Since taking out a home equity line of credit adds debt, it is important to consider your reasons for doing so and balance the possibility of negative financial consequences, as a result.
How Much Can I Borrow at a Time?
You can generally borrow 80% of your home’s value, minus any amount owing on your home. This is only a rough estimate, however, since lenders and underwriting rules vary.
If you want to determine how much you can borrow with a HELOC, Money Help Center has created a free home equity line of credit calculator that can help you determine whether it makes sense to apply for a line of credit. Answer a few questions and get an estimate of how much you can borrow.
You can take a look at our free and unbiased calculator to determine whether a line of credit makes sense for your needs and whether you want to apply.