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Everything You Need to Know about HELOCs


Everything You Need to Know about HELOCs

Have you been contemplating a new financial endeavor, but it seems like a distant reality with no affordable way to finance it? If you’re considering a large home renovation, booking the trip of a lifetime, or providing financial support to your child’s college education, a home equity line of credit (HELOC) might be the best financing option for you. Bear in mind, the Federal Open Market Committee (FOMC) recently met and decided to cut the federal funds rate for the second time this year, resulting in many banks reducing their rates for HELOCs among other financing options. If you’ve built sizable equity into your home, the financing to accomplish your dreams may be closer in reach than you once thought. Here are more facts to help you determine if a HELOC is right for you!

What is a Home Equity Line of Credit?

Similar to a credit card a home equity line of credit (HELOC) gives consumers access to a line of cash immediately, with the ability to repay as they spend. A home equity line of credit is often referred to as a second mortgage that provides the consumer a line of credit based on the equity built in their home. When an individual opens a line of credit they are borrowing against their home’s equity, which is the home’s value minus the amount you owe on your first mortgage. While terms vary by bank, at Citizens Savings Bank a person can borrow up to 80% of their home’s value, a much higher limit compared to a credit card. In fact, a HELOC’s limit can be as much as $150,000 - depending on the home’s value.

What can a Home Equity Line of Credit be used for?

Since a HELOC typically has a higher limit, many consumers take advantage of this funding option for expenses such as home repairs and renovations to help increase the overall value of the home. Although a HELOC is most often used for home related expenses, there are so many other expenses that it can be used towards. Many have used a HELOC to help finance a college education or an upcoming family trip.

How does this vary from a Home Loan?

Compared to a home equity loan (HELOAN), a HELOC is generally more flexible. Unlike a HELOAN or any type of personal loan, a HELOC does not require you to max out the approved amount credited at the time of opening. Instead there is an option to borrow as needed. More simply put, a HELOC allows the consumer to take what they need, repay as they go, and take additional cash when necessary. Consumers are also only required to pay interest the amount they’ve borrowed, not the full line of credit. On the flip side, a home equity loan presents money in one lump sum and the person is responsible for paying the interest for the full loan amount.

Another notable difference between the two is that a home equity loan has a fixed interest rate, resulting in monthly payments remaining the same. In contrast, a HELOC is heavily influenced by the prime rate since it is a variable rate. This causes the interest rate and monthly payments to increase or decrease depending on outside factors. For this reason, a home equity loan can be considered a more secure financing option in comparison to a HELOC.

Why is Now the best time?

If you’ve been following along with The Federal Open Market Committee (FOMC) meetings over the past few months, you are surely aware that the Fed rate has been cut not once, but twice this year. That’s right! In early September, the Federal Reserve decided to cut the Fed rate for the second time this year, resulting in the prime rate decreasing as well. What does this mean for HELOCs? Since HELOCs have a variable rate they are directly affected by the set prime rate. This is a financial win for consumers who currently have or are considering opening a home equity line of credit in the future. Consumers can expect to see lower interest rates and monthly payments as soon as this fall. A friendly reminder to those who are on the fence about opening a HELOC, the FOMC will be meeting again later this month which could either result in another rate cut or increase. Now might be the best time to lock in this rate – historically speaking, this year is the first time in over a decade that the Fed has lowered the rate.

Talk to a Home Equity Specialist at Citizens Savings Bank

It’s important to talk to your bank about all your lending options and learn if you qualify for a home equity line of credit. At Citizens Savings Bank, we have knowledgeable and experienced staff that can help answer any of your questions and help you get started today. It’s also important to mention that by opening a home equity line of credit, you could potentially be putting your home at risk if you are unable to pay back the debt. Consult your tax advisor for further information regarding the deductibility of interest and charges. We can help you determine if a HELOC is the most sensible and affordable solution for you. Begin by researching the rates on our website and contact a representative to learn more today. Your dreams are closer than you think!

Learn More

Citizens Savings Bank has multiple locations throughout Lackawanna, Wayne, and Monroe Counties. For branch locations and hours, visit our website. We also have a Customer Support Team ready to answer any questions you may have. Call us today at 1-800-692-6279 or email [email protected].