There are times in life when there’s just not enough money in the pot to cover some of life’s biggest expenses. Maybe you want to cover the cost of a home improvement project or pay for a car repair. Or perhaps you need the extra money to pay for college tuition or another pressing expense. Whatever the case may be, having access to extra money in the form of a loan can prove to be a life-saver sometimes.
There are plenty of loan options available in these cases, including HELOCs. This unique type of funding may be available to homeowners who have a certain amount of equity. If you qualify, you can use the funds from your home equity in the form of a HELOC to cover whatever expenses you might have.
Keep reading to find out what HELOCs are and if they’re the right loan option for you.
HELOCs – Defined
Simply put, a HELOC – an acronym for a ‘home equity line of credit’ – is a type of loan that lets homeowners borrow against the equity built up in their homes. Home equity refers to the value of your property, less whatever is still owed on your mortgage. In order to qualify for a HELOC in Richmond, you’ll need at least 20% equity in your home.
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How Does a HELOC Work?
A HELOC may be a type of loan, but it’s rather different than the sorts of loans you might be familiar with. The average loan often involves gaining access to a lump sum of money, then paying the loan back in installments with interest. But HELOCs work a little differently.
The best way to understand a HELOC is to compare it to a credit card. Borrowers are offered a specific limit of funds that they are allowed to borrow against with a HELOC, which is similar to what you would get with a credit card limit. You’re then free to borrow as much or as little of that limit as you need to.
Thinking of using your home equity to pay off your credit card debt? Read this first.
The only time you pay interest is if you withdraw funds, at which point you’ll only owe interest on the exact amount that you’ve withdrawn rather than the full credit limit. Once you’ve paid back that loan amount that you withdrew, you no longer owe interest or payments until you withdraw again.
You’re free to make withdrawals as often as you please, as long as the full amount is repaid when the term of the HELOC expires.
Click here to learn how you can get the best rate for your line of credit.
How Do HELOCs and Home Equity Loans Differ From Each Other?
HELOCs are often used interchangeably with home equity loans, but they differ slightly from each other. Their similarities lie with the fact that they both involve the use of equity in a home that homeowners use as the source of their loans. But that’s where their similarities end.
Also known as a ‘second mortgage‘, a home equity loan involves borrowing a lump sum of money against a home’s equity rather than involving a credit limit that can be withdrawn at different times and in varying amounts. The money borrowed with a home equity loan is then paid back in installments, similar to the average type of loan.
What Can You Use a HELOC For?
The funds from a HELOC can be applied to a variety of things, including the following:
- Home improvement projects
- Car repairs
- College tuition
- Investment opportunities
- Starting or expanding a business
- Debt consolidation
Do you know what the true cost of borrowing is? Check out this infographic to learn more.
Should You Apply For a HELOC?
For starters, you will need to ensure that you are eligible for a HELOC before you consider taking one out. You’ll obviously need to be a homeowner in order to have equity accessible to you. Furthermore, you’ll need at least 20% equity in the home in order to qualify.
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If a HELOC is an option for you, you’ll want to think hard about why you want to apply for one. After all, it is money that you will owe, so you’ll want to make sure that you’re not just financially capable of paying it back, but that you’ll be putting the funds to good use.
A good reason to apply for a HELOC Richmond is to cover the cost of home renovations. That’s because you’ll be adding value to your home (if the right updates are made), making it money well spent. Also, if you need the money for emergency purposes, then perhaps taking out a HELOC might make sense.
But if you’re planning to use the money for frivolous purposes or you aren’t financially comfortable enough to repay the money, then you might want to think twice about applying for a HELOC, or any other type of loan for that matter.
If you’d like to apply for a HELOC or other home equity loan product, click here.
Are You Considering a HELOC Richmond?
After assessing your financial position and the reason why you want access to more money, determine whether or not applying for a HELOC makes sense. If it does, let Loans Canada help you find the right lender to help you access the equity you’ve worked hard to build up in your home to be put to good use.