Understanding Home Equity Lines of Credit
A home equity line of credit (HELOC) is a type of loan that allows you to borrow against a portion of the equity in your home. Equity is the difference between the value of your property and the outstanding balance of any existing mortgages. A HELOC is a revolving line of credit, meaning you can access funds as needed up to your approved limit, pay back what you’ve borrowed, and then borrow the funds again. The decision to get a home equity line of credit depends on your financial goals and situation. Traditions Bank’s finance experts can help you determine if a HELOC is the right decision for you.
What are the benefits of a HELOC?
When searching for a loan, using the equity in your home can result in a better interest rate than other borrowing options such as a credit card. Two convenient repayment options are available for HELOCs: Principal and Interest or Interest only.
A HELOC can be used for a variety of purposes, including:
- Home improvement projects
- Debt consolidation
- Education expenses
- Medical expenses
- Vacations or large purchases
- Emergency funds
It’s important to note that a HELOC is best used for significant expenses, not day-to-day spending. Your home secures the funds, and failure to repay can result in foreclosure.
Lock in your rate with a HELOCK
As an alternative to the HELOC, a HELOCK allows you to lock your interest rate on all or a portion of your outstanding principal balance whenever you choose, with a fixed rate, term, and monthly payment. This is particularly helpful for customers who want to take advantage of a lower rate or help with budgeting.
The Application Process: What to Expect
At Traditions Bank, the application process is simple. You can apply online or we can set up an in-person meeting to discuss your options and determine whether a HELOC or HELOCK is right for you.
We’ll typically start with questions about your borrowing needs and your property. If you choose to move forward with the application process, we will require supporting documents like bank statements, tax returns, proof of homeowner’s insurance, and proof of income. We will also need to determine your home’s current market value to establish the amount of equity available for borrowing. Your application will then be evaluated based on the information gathered, a process that typically takes about two weeks.
Home Equity Lines of Credit vs. Home Equity Loans
While a HELOC offers a variable rate and allows you to draw funds as needed, a home equity loan provides a set amount you receive in full at settlement, with no option to borrow additional funds as the balance is repaid. The rate and term of a home equity loan are fixed and your monthly payment stays the same until the loan is paid in full.
The option that is right for you ultimately depends on what you are comfortable with, what type of payment is manageable, and how you will use the money. If you aren’t sure what is best for your unique financial circumstance, our experts are here to help.
Partner with Traditions Bank
As a local community financial institution, Traditions Bank prides itself on knowing our customers well, understanding their needs, and delivering the right products for those needs.
If you are in the market for a home equity loan or line of credit, we are here to help review your options and find the best solution. To learn more, schedule a call with our personal banking team today.
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