Maybe…just maybe you might have some big home projects planned this year. With spring’s arrival, you might be looking around and seeing what needs a little sprucing up. Or maybe you’re like a lot of Americans battling inflation and feeling the pinch in your monthly budget. Whatever your reason, if you’re looking at options for extra cash, you might wonder: Is a HELOC a good idea? We’re here to tell you how it works, what the difference is between a home equity loan and a HELOC, and what benefits a HELOC loan can bring.
How Does a HELOC Work?
Simply put, a home equity line of credit (HELOC), is a revolving line of credit secured by the equity in your home.
With a HELOC, you can borrow as much or as little as you want during your draw period (the time you open a HELOC until the time you start repaying it). You only pay interest on the amount that you use, and, similar to a credit card, your credit line is replenished as you pay down your balance.
To open a HELOC, you’ll apply with your potential lender (you can apply online with Discovery FCU). Your application may require documents like W2s, tax returns, or paystubs.
Once approved, you’ll be able to use it by transferring to a Discovery FCU account or making a withdrawal. As long as you stay under the loan amount, you can use as much as you need when you need it.
Benefits of and Uses for a HELOC
As we mentioned, a HELOC can be a great option for home projects or unexpected, larger expenses because the interest rate is typically lower than that of a traditional credit card – or even a personal loan. That’s because the loan is secured by your home. Put that equity to work for you!
Another great benefit of a HELOC is that you can usually access more money with a HELOC than with other types of loans. Plus, as we noted above, there’s the added flexibility: You don’t have to pay interest on the total amount your lender awards you – only on the amount that you choose to borrow.
Both HELOCs and home equity loans can also provide tax benefits. You may be allowed to deduct the interest on your HELOC if you use it to make renovations on the home that has secured the loan. There are limits and conditions, so be sure to read the latest IRS information, or speak with a qualified accountant or financial adviser.
Here are some ways you can use a HELOC:
- Home improvements that add value to your home like new windows, a kitchen or bath remodel, or a finished basement.
- College tuition: Invest in your’s or your children’s future – or pay off that old student loan debt.
- Vacation: Create awesome memories and make time for a dream vacation.
- Debt consolidation: Pay off high-interest credit card debt.
Then again, maybe it’s finally time to put in the pool that you’ve been dreaming about and turn your backyard into a summertime oasis. A HELOC can help with all of the above…and more.
Home Equity Loan vs HELOC
If you’re confused about what the difference is between a home equity loan and a HELOC or just which one is better for you, here are the major differences:
- A home equity loan provides a lump sum payment, which you must begin paying off right away. It comes with a fixed interest rate, which is typically lower than rates for a bank’s personal loans or traditional credit cards.
- As we mentioned before, a HELOC is not a lump-sum disbursement. Instead, it acts as a revolving line of credit that you can borrow from when you want to. You do not have to make payments on the full amount credited to you – only the amount that you borrow.
- Like home equity loans, HELOCs offer lower interest rates than credit cards or other types of loans, but the rates are variable.
Apply for a HELOC With Discovery FCU
When you’re ready to take advantage of the equity in your home with a HELOC, Discovery FCU has a quick and easy online application with no application fees!
And as a credit union, we offer some of the lowest interest rates on top of the exemplary personal service that we are known for. Check out our current rates and additional info about our home equity loan options, and apply for a HELOC today!
Disclaimer: Not all members will qualify for a Home Equity Line of Credit (HELOC). APRs are based on creditworthiness, term of loan, loan-to-value, direct deposit & automatic payments to/from a Discovery FCU account. Other restrictions apply. Always discuss with a banker or financial advisor to determine which option is best for you.