What is a HELOC?
One of the biggest perks of home ownership is the ability to build equity over time. You can use that equity to secure low-cost funds in the form of a second mortgage.
HELOCs use the equity in your home – that is, the difference between your home’s value and your mortgage balance – as collateral. Because the loans are secured against the value of your home, home equity loans offer extremely competitive interest rates.
Benefits of a HELOC?
- Home equity can be a great source of value for homeowners to access cash for renovations or other large purchases.
- Because they’re secured against the value of your home, lenders are willing to offer rates that are lower than for most other types of personal loans.
- Home equity lines of credit (HELOC) are a revolving source of potential funds, much like a credit card, that you use as you see fit with a variable interest rate.
Lenders underwrite second mortgages much like other home loans. They each have guidelines that dictate how much they can lend based on the value of your property and your creditworthiness. This is expressed in a combined loan-to-value, or CLTV, ratio.
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