How to Use a Home Equity Line of Credit

What to consider when deciding whether to borrow against your home’s value

What is Home Equity?

Home equity is the difference between the appraised value of your home and the balance owed on your mortgage. If you’ve owned your home for a long time or if you’ve paid off a significant portion of your loan, you may be able to borrow money using the equity in your home as collateral.

Line of Credit Benefits

If you’re approved for a HELOC, you are extended a line of credit for a set number of years. You can borrow as much as you need, up to the limit. So, what you actually borrow against your equity can be flexible based on what you’re hoping to accomplish. A line of credit is different from a loan in that the line stays open as ongoing source of funds. As you pay down the line, more is available for you to borrow. It provides you what you need, when you need it.

Remember, borrowing against your home’s equity isn’t always the best option. Make sure you understand the benefits and the potential risks. York Traditions Bank can help! Contact us today and find out if a HELOC makes sense for you!

How Can a HELOC Be Used?

  1. Upgrade and Improve Your Home
    Your needs change as you do. Sometimes, it’s necessary to make updates and improvements to fit your family’s lifestyle. Other times, repairs (like a new roof) are inevitable. Certain improvements, like adding square footage, or updating a kitchen or bath, can increase your property value.
    Not all upgrades increase your home’s value. It’s especially important to think about their costs, how much you’re paying in interest, and potential impact on your home’s worth if you’re using a home equity line of credit to pay for them.
  2. Consolidate Debt
    In many cases, interest rates on a HELOC are considerably lower than other types of loans, like credit cards or car loans. If this is the case for you, a HELOC may be advantageous when consolidating debts. The benefits of using this method of borrowing depend upon your financial circumstances.Interest rates on HELOCs are variable. This means that the rates change over time. The quicker you can pay it off, the less you will pay in interest.
  3. Help with the Cost of Higher Education
    If you or a child are headed to college, a HELOC can help manage those costs. You can borrow money to pay tuition upfront, then pay the debt off over the duration of your loan. HELOCs can offer better interest rates than private student loans.

Whenever you are considering borrowing money, it is important to evaluate YOUR needs, lifestyle and financial situation. Discretionary purchases, like weddings or vacations, are not the best reasons to utilize the equity in your home. Always remember, your collateral for a HELOC is your home. Defaulting on a HELOC can negatively impact your credit score or cause foreclosure. Want to talk more?

Contact Us View Current Rates