First, let’s clear up what a HELOC stands for. HELOC is an acronym for Home Equity Line of Credit. A HELOC is a consumer loan line of credit product that is typically secured by a primary real estate residence. Most often a HELOC is secured by a 2nd mortgage and the line amount is determined on the value of your home less the amount owed on your existing 1st mortgage and the repayment ability of the homeowner. The line is typically available for any discretionary spending needs of the homeowner and the amount available to use depends on the level of repayment by the borrower. Many HELOC’s require monthly payments of just the accrued interest due on the amount owed.
Now, the big question. If I’m a homeowner with equity in my home, why do I need a HELOC? While everyone’s situation is unique and their specific needs change over time, here is a bullet point list of the benefits that makes the HELOC such an attractive product for most homeowner’s.
- Let’s leadoff with the big one. Currently, all interest paid on a HELOC that is secured with a mortgage on your residence is tax deductible. No other consumer debt product that offers discretionary spending through a line of credit offers this important benefit. Credit cards do offer benefits for short term discretionary spending needs if you are planning on paying the incurred debt off quickly, but for your purchases with a longer repayment schedule, the tax deductibility feature offers a huge potential benefit.
- The HELOC typically has an interest rate that is usually much lower than most credit cards. The rate is typically variable, just like most credit cards, and like most credit cards the interest rate usually is tied to a bank or national prime rate. Due to the tax deductibility feature of the HELOC, your actual tax affected rate can be even lower.
- Once approved, a HELOC can be used for any discretionary spending needs. Depending on the amount available, it is always there for that home improvement project, that new car you have been putting off buying for a couple of years, or helping to pay that large student tuition coming up in the fall for your college-bound child. You will not receive a phone call from your credit card company asking about the purchase, or even worse, have the credit card cancel the purchase due to concerns about possible card fraud due to the significant size of the transaction.
If you have an interest in learning more about a HELOC and how it may meet your specific financial needs, your lending team at Lafayette Community Bank would happy to sit down with you at your convenience. We offer highly competitive terms on all of our consumer loan products and always strive to determine the best loan product that meets your financial need. Call any of our convenient banking centers and ask to speak to one of our many loan specialists today!