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HELOC – the Cliff Notes Version

You’ve probably all heard the term HELOC. And you probably know that it’s short for Home Equity Line of Credit. But what do you really know?

HELOC – The Basics

A HELOC is a way for you to borrow money, and tap into the equity in your home. Of course, with any loan you’ll need to make payments, with one exception. And we’ll talk about that later.

But if you purchased the home some time ago, it’s probably gone up in value, and you’ve probably paid the mortgage down to a small fraction of the current value. If so, you can tap into that value for any purpose, possibly for college education for your children, or a renovation or an addition. Or even a swimming pool. It doesn’t matter what you want to do, this is a source of funding for it.

How Much Can You Borrow?

Banks each have their own policies as to how much you can borrow on a HELOC. Some banks allow up to 70% of the homes value, others allow up to 85%, and anywhere in between. However, the original mortgage balance also figures into the equation. For example – if your home is worth $400,000 and the bank allows 70%, you can borrow $280,000 maximum. If your existing mortgage has a balance of $100,000, deduct that form $280,000 for $180,000 allowed on the HELOC. Got that?

The Benefit of a HELOC

Setting up a HELOC is relatively quick and easy. And you’ll avoid the expensive closing costs of a total refinance. In addition, you can set up the HELOC and just get a checkbook so that you have access to funds if you need it. And quite often, the HELOC can be set so that you don’t pay monthly payments on the principle, just the interest.

Purchase Your Next Home with a HELOC

Let’s say you have a ton of equity in your home, but you’re ready to purchase a new, smaller home. Maybe in an adult community. (Face it – would you be on this site if you weren’t looking for an adult community? Probably not.) You find your new home but you need to sell the old one to pay for it. But you’d rather buy the new home, move and then sell the old one. This is a possible way to finance the purchase. And, when you sell the old one, you pay off the HELOC and pocket the balance.

The Exception

I told you earlier about a HELOC where you don’t need to make payments. And that would be a reverse mortgage HELOC. But that’s a subject for another post.

If you’re ready to either buy or sell a home, call Bunny and Art Reiman – The Adult Community Specialists

Would you like to see adult community homes in Ocean County?

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