Understanding a HELOC and How To Use It: A Guide For Shenandoah Valley Homeowners
Your home is an investment in many ways, and once you accrue equity in your home, you have it at your disposal for financial uses. If you’ve been wondering why apply for a HELOC, we’ll walk you through what a HELOC is, all the things you can use it for, and how to make the most out of your HELOC. Whether you’ve built home equity from paying down your mortgage and/or the appreciating value of your house within the market, you can benefit from your ownership of the home to finance projects and consolidate debt.
What is a HELOC?
A Home Equity Line of Credit (HELOC) is a revolving credit account, similar to a credit card, that provides a credit limit for a certain amount of time (the draw period). You only draw funds from the account when you need to, make payments on what you borrowed, and use the credit line again until the end of the draw period.
While a HELOC is similar to a credit card account, the primary difference between the two is what kind of interest rate you can get. Because HELOCs are secured by your home equity, you can get a much lower rate than you would with a credit card. So, financing home renovations and other large expenses with a HELOC is usually more affordable than using a credit card or personal loan. Depending on how much equity you have in your home, you may also be able to get a higher credit limit with your HELOC than with a credit card or personal loan.
The other attractive benefit of a HELOC is its flexibility. Unlike a Home Equity Loan, you don’t receive a lump sum that you have to use right away. In fact, some people use the HELOC as an emergency account. You can open it now and won’t owe anything until you first draw funds. Then you can use your HELOC as many times as you want to (up to the credit limit) through the draw period.
Using a HELOC for Home Renovation
Have you been dreaming of a brand new kitchen? Need to add an addition to your home to create office space or room for a new baby? A Home Equity Line of Credit is a convenient way to finance your home renovation.
- Lower interest rates
- Option to make interest-only payments
- Possible tax deduction for interest paid on HELOC if the funds are used to buy, build or substantially improve your residence. Please consult your tax advisor regarding your particular situation.
- Potential ROI when you sell your home from renovations financed through your HELOC
- Variety of uses such as updating your home to meet your needs, improve energy efficiency, and more.
- Great option for when you’re looking to sell your home but want to increase its value first
Using a HELOC For Debt Consolidation
Are you drowning in credit card debt? Do you have so many different monthly debt payments, it’s hard to keep track?
Debt consolidation means taking out a new loan to pay off multiple debt accounts, such as credit card balances, personal loans, student loans, and more. Consolidating your debt with a HELOC could help you save money on interest and reduce the number of monthly bills you need to keep track of. And since HELOCs are so flexible, you may still have some credit left over to use on other things, or you can pay off your HELOC balance before using it again.
Using a HELOC For a Second Home or Investment Property
Whether you’re looking to purchase a vacation home or an investment property, you can use your HELOC to come up with a down payment on your second property and/or to make improvements and repairs to a second property you already own.
Financing Education Expenses
Whether you’re a parent with a child approaching college age, or an adult homeowner looking to return to school, a HELOC can also be used to pay for tuition and associated expenses with higher education, as well as private schools. Pay as you go and make interest-only payments if you need to keep your costs down while in school.
Paying Off Medical Debt
Whether you just got hit with a high medical bill, or you know an expensive surgery or treatment is coming up, you can use your HELOC as an emergency fund or to pay off medical debt. As mentioned earlier, HELOCs offer lower rates than credit cards, so it could be a more affordable way to pay your medical bills or any other large, unexpected expense that comes up. Preserve retirement savings and use your HELOC instead.
Tips For Getting The Most Out of Your HELOC
While there are many advantages to having a HELOC, you can get the most of your new Home Equity Line of Credit by following these tips:
- Make on-time payments to avoid a late fee.
- Pay more than just the interest due if possible.
- Know when your HELOC draw period ends.
- Review the terms of your HELOC and be mindful of fees.
- Understand the closing costs associated with your HELOC.
- Best used for smaller projects and expenses.
- Try to use your HELOC, pay off what you borrow, and then use it again instead of maxing out your credit limit.
Apply for a HELOC From F&M Bank!
Looking for a HELOC lender in the Shenandoah valley? F&M Mortgage is a true local mortgage company that has served the community since 1999. Contact us to learn more or start the process of applying for a Home Equity Line of Credit. You can also apply online whenever you like, or visit your local branch office in Staunton, Harrisonburg, Winchester, or one of our locations in Augusta, Page, Rockingham, Frederick, or Shenandoah county to speak with a loan officer about your options.