Home Equity Lines of Credit

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What is a Home Equity Line of Credit (HELOC)?

A home equity line of credit (HELOC) is a line of credit that allows you to borrow against the equity you’ve already built up in your home. The line of credit is secured by your home as collateral, and gives you a revolving credit line to use for large expenses or to consolidate higher-interest rate debt on other loans, such as credit cards. A HELOC often has a lower interest rate than some other common types of loans, and as a line of credit, a HELOC allows for flexibility around both borrowing and repaying money.

HELOCs are often used to finance a home remodel, but can be used to finance other big purchases as well. They are a good choice for home remodels because the borrower can access the line of credit to pay for expenses as they arise, which is helpful in the case of a remodel. The HELOC is like a credit card in that it’s an “open-end loan;” the borrower can draw as little or as much as is needed from the equity loan, up to an established limit. The HELOC is easy to draw from at any time, and as the outstanding balance is repaid, the amount of available credit is replenished – much like a credit card.
A HELOC is unlike a credit card in that it offers lower rates, and is structured with a “draw period,” during which you can “draw” from borrowed funds, and a subsequent “payment” period, during which you pay down your outstanding balance. Also unlike a credit card, you may be able to deduct the HELOC interest you pay from your taxes.

Many consumers are able to deduct the interest paid on their HELOC from their income when it comes to tax time, resulting in significant tax advantages, especially if you have a larger HELOC balance. Be sure to consult your professional tax advisor to see if you would qualify for any tax advantages.
Most HELOCs have adjustable interest rates, which means that as baseline interest rates go up or down, the interest rate on the HELOC will fluctuate. Most lenders will start with an index rate, then add a markup depending on the borrower’s credit profile. At Elev8 in Bend and Central Oregon, we’re able to minimize the markup rate and offer our clients the most aggressive rates because we’re mortgage brokers, and can shop different lenders to get some of the best rates possible for our clients.