Dakotaland FCU Blog

WHAT IS A HELOC?

Written by Dakotaland | Jul 25, 2023 2:26:24 PM

As a homeowner, it can be daunting looking at interest rates and percentages that are consistently changing with the market and filled with terms that are unfamiliar or only understood on a surface level. You want to do the best for you and your family when it comes to financial decisions. A financial partner like Dakotaland can assist you fully, but a small amount of online research can help you get an idea on what you may need. This is simply a summary explanation of one product we can provide for you.

If you’re a homeowner facing a large financial expense, we offer a loan option called a Home Equity Line of Credit (or a HELOC.) A HELOC allows homeowners to dip into the equity they have built in their house. Essentially, you are taking a revolving loan out against what you have already paid into your home, similar to a credit card, but tied to a mortgage. Generally, a HELOC is closed a little faster with a little less paperwork than a typical second mortgage product. In addition, a HELOC typically offers lower rates than credit cards or other unsecured loans you could consider. Point being, if you own equity in your home, a HELOC may be great resource for you.

The next question is, how much equity do you have in your home? Equity is the difference between how much you owe on your mortgage loan and the current value of your house. The value of your equity changes over time through the payments you make on your mortgage and the market value of your home. As a simple example, if you made a 5% down payment of $10,000 on a $200,000 home and took out a mortgage loan to cover the other $190,000, when you purchased the home, your equity equaled the initial down payment of $10,000. Your equity grows as you make your loan payments. If you paid off $100,000 of a home valued at $200,000, you then own 50% equity of your home. Once your mortgage is paid off you have 100% equity.

A Home Equity Line of Credit is also a useful tool to increase your property value if you choose to remodel or perform repairs on your home. These types or renovations are a common reason to pursue a HELOC, but this loan can be used for a variety of other reasons. Utilizing the equity in your home to consolidate debt, such as medical bills, credit card balances and student loan debt would be another opportunity to utilize the equity in your property, while minimizing payments and high interest rates.

If a HELOC is a good match, we can help get the process started, but if it isn’t the best fit for you, Dakotaland offers other loans and opportunities to help you reach your financial goals. As a not-for-profit financial cooperative, we can offer local decisions and local loans at a competitive rate. Contact us today.