When it comes to home improvement projects, educational funding, and consolidating high-interest debt, your house can be your biggest source of cash. A home equity line of credit (or HELOC) is a flexible funding option available through Greater Nevada Mortgage.
Home Equity Line of Credit (HELOC)
What is a Home Equity Line of Credit?
A home equity line of credit is a kind of second mortgage secured against the value of your home’s equity. Because of this, HELOCs typically have lower interest rates compared to other funding options (like standard personal loans). HELOCs also let you pull funds as needed and repay them at variable interest rates. So in that sense, HELOCs operate more like credit cards with a revolving line of credit. A revolving credit line allows you to continuously borrow up to a maximum limit. You pay the money back over time, often by making minimum payments, determined by how much of the available credit is accessed.
How Does a Home Equity Line of Credit Work?
Because HELOCs are very different from other types of home loans, it’s important to understand exactly how they work.
During the draw period, which typically lasts around 10 years, you can access your credit however you like. Like a credit card, you only have to pay interest on the amount you’ve borrowed–not the full line of credit during the draw period. However, it’s a good idea to pay toward the principal if you’re able to do so.
After the draw period ends, the repayment period begins and usually lasts for about 20 years. Funds are no longer available during this time, and you must make regular monthly payments (including interest and principal) until your balance owed is zero.
Finally, though home equity loans typically have fixed interest rates, a home equity line of credit usually comes with an adjustable rate.
HELOC loan amounts vary. The maximum is based on your home’s value, the percentage of that value you can borrow against, and how much you owe on your first mortgage.
Starting at 6.25% APR1
Draw periods typically last for 10 years and repayment periods typically last for 20 years.
HELOCs can be used for home improvements, as well as educational funding, new home purchases, and consolidating other high-interest debt.
HELOCs normally require a minimum 640 FICO credit score.
To apply for a HELOC, you must first qualify for a membership with Greater Nevada Credit Union (which is open to anyone living or working in Nevada’s 17 counties, and members of their immediate family). We then use a figure called a combined loan-to-value (CLTV) ratio to determine your eligibility. It’s based on your property’s value and your creditworthiness.
Understanding how HELOCs work, especially because of their unique draw and repayment periods, can be challenging, but we’re here to help. We’ve answered some of the most common questions we receive from homeowners about this unique funding option.
What are HELOCs typically used for?
HELOCs can be useful sources of funding for homeowners looking to make large purchases. Those purchases can vary from high-interest debt consolidation to home improvement projects and educational expenses. In short, HELOCs can provide financial flexibility.
How is a HELOC different from a home equity loan?
Though both are based on the equity in your home, HELOCs and home equity loans have unique features and conditions.
Home equity loans have fixed payments with fixed rates. You’ll borrow a specific lump sum and can’t access more funds at any point, even in an emergency. You’ll repay what you borrowed in fixed monthly amounts for a fixed term. Between these loan options, home equity loans are more predictable.
HELOCs, on the other hand, are revolving lines of credit with variable interest rates. This means you can access funds as needed, and interest rates may increase or decrease over the years. During the repayment period, you can’t access funds, and your monthly payments may continue to increase or decrease over time as rates change.
What are the advantages of HELOCs?
HELOCs offer many advantages over other kinds of home loans. Upfront costs are generally lower, and HELOC interest rates are usually more competitive than credit cards. Plus, you’re only charged interest on the funds you use, saving you more over the life of the loan versus receiving a lump sum from a home equity loan.
What are the disadvantages of HELOCs?
Though they offer plenty of perks, HELOCs naturally come with some disadvantages which can be avoided by managing your usage. Variable rates can lead to higher repayment amounts, and there may also be additional fees. Late or missed payments can also hurt your credit score.
What is required to qualify for a HELOC?
Many lenders require at least 15 – 20% equity in your home. This number is used to calculate your loan-to-value ratio, which helps determine your eligibility for a HELOC.
Along with a minimum amount of equity, you generally need a credit score of 640, a history of responsible mortgage payments, a steady income, and a reasonable low debt-to-income ratio–usually 45% or lower–to improve your eligibility for a HELOC.
Is a HELOC tax deductible?
Please consult with your tax advisor for information on tax implications with a HELOC.
How to Apply for a HELOC
Applying for a HELOC is as simple as contacting Greater Nevada Mortgage. We’re here to help you understand your home loan options, determine your eligibility, and get access to the funds you need.
Calculate Your Home’s Equity
Learn how much you can borrow by calculating how much equity you have in your home by subtracting your remaining mortgage from your home’s current appraised value.
Submit Your Application
It’s quick. It’s easy. It’s online. We suggest gathering essential information (repayment history, credit score, proof of debts and other documents) before you begin.
All your HELOC questions are answered by your dedicated mortgage consultant and their team as you learn about what options work best for your goals.
1APR = Annual Percentage Rate. The APR can vary and is based on the Prime Rate plus a margin of 0.00% to 1.50% based on borrower credit rating and other qualifications. The APR is subject to change each month, based on changes to the highest Prime Rate published in the Wall Street Journal “Money Rates” table. Minimum APR is the Prime Rate, maximum APR 18%. Up to 80% CLTV available with credit lines from $25,000 to $250,000 subject to collateral type and borrower qualifications. Fees and closing costs to establish a HELOC generally total between $0 – $1,500 and are paid by the borrower. $75 annual fee beginning on the first anniversary date. $500 pre-payment penalty if the HELOC is closed within 36 months of origination. Rates, terms and conditions are effective as of September 22, 2022, and are subject to change without notice. Loans are available for 1-2 unit, owner-occupied properties in the state of Nevada only. Greater Nevada Credit Union membership is required prior to loan funding. Additional terms and conditions may apply. The interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax deductible for Federal income tax purposes. Borrower should consult a tax adviser for further information regarding the deductibility of interest and charges. This is not a credit decision or a commitment to lend. We do business in accordance with the Federal Fair Housing Law and the Equal Opportunity Act, and the California Fair Employment and Housing Act.