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A HELOC is a loan that is underwritten using your current home’s value. For example, if you’ve owned your home for 10 or so years, then you likely have a significant amount of equity, or money, invested in it.

A HELOC essentially serves as a sort-of second mortgage, so the bank would give you a maximum loan amount for you to use based on the equity that you have in your home.

HELOCs have a “draw period,” typically ranging from 5 to 10 years, during which time borrowers can access the funds. During the draw period, the borrower is only required to pay interest on those funds that they actually drew out and used. After the draw period closes, borrowers are required to pay off the HELOC, or refinance it to another loan, during the repayment period. Repayment periods typically range from 10-20 years.

What's the advantage of using a HELOC?

HELOCs are beneficial because you’re only paying interest on the funds you actually use, so if you’re not sure how much money you’ll need, then a HELOC can be a good option. As with any loan, you’ll want to talk to a financial expert and be confident you can pay off the HELOC before establishing one.

Remember, ultimately the goal of homeownership is to own your house free and clear, so if you’re unsure as to whether you can handle additional payments after the draw period, then you may want to explore other avenues of funding, or look at adjusting your existing budget.

Put your home to work for you.

Put your home to work for you.

Use the equity you've built to tackle home improvements, consolidate expenses and high-interest bills, or pay for college.

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