Homeowners in Wisconsin in need of extra money may find that a home equity line of credit is the right choice for their situation. With a home equity line of credit, also known as a HELOC, it’s possible for homeowners to tap into their home’s equity to cover expenses. Home equity lines of credit work a bit differently from regular loans in that the borrower receives a revolving credit account that works similarly to a credit card.
The amount a homeowner is able to borrow using a HELOC can be based on a variety of factors, including the bank issuing the line of credit. Banks such as Great Midwest Bank, Wells Fargo, and Bank of the West are some of the more common banks issuing home equity lines of credit in Wisconsin. Many homeowners are able to borrow up to 80 or 90 percent of their property’s value.
Before taking out a home equity line of credit, it’s a good idea to understand exactly what a HELOC is. When you take out a home equity line of credit, the loan is secured by placing a lien on your home. The borrower may draw upon the line of credit at any time, usually by writing a check.
The interest rate on a home equity line of credit is typically adjustable and is tied to the prime rate. This means that the interest rate on the loan can fluctuate. As a result, payments may not always remain the same. Factors that may affect the interest rate offered on a HELOC include the borrower’s creditworthiness as well as the amount of equity the homeowner has in the home. Most banks require borrowers to have a minimum of 20 percent equity in their home to qualify for a line of credit.
Borrowers who are not sure how much equity they may have in their home can obtain an estimate by subtracting the amount of money still owed on the home from the current value of the home. It should be kept in mind that the value of the home is not necessarily what the homeowner paid for the home. Home values can fluctuate based on a number of factors, including the local market as well as whether any improvements have been made to the home since its initial purchase. Homeowners may be able to obtain an estimate of their home’s value by reviewing the listing price for similar properties online.
The payment for a home equity line of credit is typically based on the monthly outstanding balance. During the first ten years of the loan, the line of credit may offer interest-only payments, but this can vary among loans. As a result, borrowers should carefully consider the terms of a HELOC before taking out a loan.
A home equity line of credit can offer a number of advantages to homeowners. Among the major benefits of this type of loan is the ability to draw on the line of credit any number of times. Among some of the most common uses for HELOCs include paying off high interest rate credit card bills, making home improvements, purchasing a vehicle, paying college expenses, or paying for medical expenses.
Borrowers should consult their tax advisors to determine whether the interest on a home equity line of credit may be tax deductible. If so, this is a benefit that can help to reduce the effective interest rate compared to credit cards and consumer loans.
Homeowners who need to make large purchases or who are facing emergency expenses may find that a home equity line of credit in Wisconsin is the right choice for their financial needs.