The home equity line of credit, also known as HELOC or “second mortgage”, is a type of loan where you use your home as collateral. As long as you manage to pay back the loan, your house is entirely safe. Just keep in mind that if you fail to pay, you might have to sell your home. If you’re interested in applying for such a loan, you’re going to need the answer to the question “How does a home equity line of credit work?” Luckily, today, we’re going to provide you with it and with many more useful information.
How Does a Home Equity Line of Credit Work?
1. How Much Can You Borrow?
The first thing you should find out before applying for such a loan is how much you can borrow. This depends on the value of your house or the amount of equity there. So the more valuable your house it, the more credit you’re going to get. Another factor that determines the amount of money you’re going to receive is your credit history.
2. How Long Does It Take to Get a Home Equity Loan?
Typically, the entire application process lasts between 5 and 10 business days. Then, if your request has been approved, you’re going to have to wait about 3 or 4 weeks before you have access to the money.
3. What Do You Get?
Basically, what you get is a total line of credit, to which you’re going to receive either a credit card or checks that connect to it. With their help, you’re going to be able to withdraw money up to the total amount of the credit.
4. How Do You Pay Back?
The interesting thing about a home equity line of credit – and one of the things which makes it so appealing to a lot of people – is the fact that you don’t have to pay back a fixed sum every month. As in the case of a credit card, you only have to pay back whatever sum you’ve used that month. This means that if you have months in which you didn’t withdraw any money, you don’t have to worry about paying an instalment.
5. What Can You Use It For?
A lot of people are curious to know what you can pay using the home equity line of credit. Can you use a home equity loan for anything? Yes, this credit can pay for virtually anything you want. Most people use it when they need to pay larger expenses, such as education and home renovation, or even for debt consolidation. The last option is a favorite of many, due to the fact that you get a lower interest rate than you’d get with a credit card.
6. Is It Tax Deductible?
The interest you have to pay on a home equity line of credit is oftentimes tax deductible. This is great news for people who want to apply for one. Still, this is not always the case. Which is why we recommend talking to a tax professional and checking whether or not this tax deduction applies to your case.
How does a home equity line of credit work? We hope this step by step walkthrough has managed to answer this question and provide you with some useful information on this type of credit.
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