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You’ve seen our posts, you’ve seen the ads, there’s a special going on involving a Home Equity Line of Credit at a low introductory fixed rate for the first 12 months of the loan.  As with a lot of financial products and services, you may be asking yourself exactly what this is and how can it be of use to you? It might be exactly what you need, but also a product you’re hearing about for the first time.  Don’t worry! We’re here to break down what a Home Equity Line of Credit (HELOC) is and some of the many uses for one!

What is a HELOC

Let’s start with the initial question: What is a HELOC?  A Home Equity Line of Credit is a loan that lets you access the equity built into your home.  When you own a home, you typically have both mortgage and equity.  These allude to the amount you still owe and the value of the home that you officially own.  In the simplest example - if you were to purchase a home for $150,000, making a down payment of $20,000 from your savings and receiving a home loan for the remaining $130,000, the $20,000 would be the amount of equity you have in your home since that is what you have paid off with unborrowed money.  The remaining $130,000 is your mortgage, of which will be split into monthly payments over a period.  However, with each payment you make, the lower your mortgage gets and the more equity you gain in your home! 

Going off this example, we will imagine that you would like to apply for a HELOC with these same values.  Since you have $20,000 worth of equity in your home, and a HELOC lets you access that equity as a line of credit, that will be what determines the amount you can borrow!  With First Community’s HELOC, you can finance up to 90% of your equity, so in this case you would be able to borrow up to $18,000 for whatever it is that you need.  Keep in mind, this is just the maximum amount you can borrow and there will be interest while you pay it back, so you do not have to borrow this exact amount if you will be needing much less. 

What advantages does a HELOC have over other loans?

Now that you’ve got a pretty good basic idea for what a HELOC is, let’s figure out what kind of advantages it has over other types of loans.  We’re not here to say it’s the end all be all of credit lines, but there are some things that give it a boost over your other personal loans!  The first advantage you may have thought of is the amount you can borrow (especially those with a lot of equity).  You won’t find many personal loans that would let you borrow around $20,000 (or sometimes more) whenever you need it. 

To this point, you also do not have to re-apply to use your remaining equity for a separate HELOC.  Considering this is another line of credit, it actually works very similarly to a credit card!  If you have $20,000 you can borrow and end up using $10,000, you can still borrow the remaining amount whenever you need it.  Once you pay down, say, $3,000 of your borrowed loan, the paid-off amount is added back to your available credit and leaves you with $13,000 you can borrow!

With a HELOC amount also being tied to equity, the housing market can also play a part in giving it an advantage over other loans. While your mortgage will not change based on the market value of your home, if the value of your home rises, potentially your equity will as well! So be sure to try and figure out if the value of your home has risen since you purchased it when you are looking to borrow. 

Why should you apply for a HELOC?

With personal loans and credit cards being options to borrow money for various projects, why should you choose to apply for a HELOC?  There’s always going to be reasons to pick one over the other, but we’re here to focus on what situations a HELOC would benefit you! If you’re looking to fund home repairs, this is absolutely a great line of credit to pull from.  Repairs and remodels can sometimes add value to your home (or at the very least help prevent it from losing value), so pulling from a line of credit based on your equity is a great reason to do so.  The rates, both during the promotional period and in the adjustable period that follows, are generally much lower than the high-interest rates on a credit card.  And, with access to the funds working similarly to a credit card, you can borrow on a much more frequent basis than other loans that require you to re-apply for each one.  The amount that can be borrowed might also be a huge contributing factor in your decision.  If you’re needing money for a large amount of funds, such as college tuition, a home equity line of credit might be the most convenient way to borrow money!

Accomplish your home projects or finalize large purchases with our Home Equity Line of Credit!

5.95% APR Introductory Rate for the First 12 Months, adjustable thereafter. Current Adjustable Rate is 9.24% APR.

OFFER VALID Through May 31, 2024