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Home Equity Line of Credit: A Comprehensive Guide for Illinois Homeowners
Building equity in your home comes with a host of benefits. You can use your equity to help fund other needs that come up in your life. One of your best options is a Home Equity Line of Credit, commonly known as a HELOC. In this article, we will help you understand what a HELOC is and what it can be used for so you can decide if tapping into your home equity could be beneficial for your needs.
What is a HELOC?
A Home Equity Line of Credit (HELOC) is a revolving line of credit, similar to a credit card. However, unlike a credit card, which is unsecured, a HELOC is a secured type of debt with the equity in your home serving as collateral. That is why interest rates on a HELOC are so much lower than with other types of unsecured credit.
When you open a Home Equity Line of Credit, you have a certain borrowing limit. There may also be a minimum amount you need to draw from your HELOC within a certain period of time. Otherwise, the life of a HELOC involves two phases:
- Draw Period: Funds are available (up to the borrowing limit) to use and re-use after you repay what you borrow. The draw period is usually about 10 years.
- Repayment Period: At the end of the draw period, any remaining balance converts to a term loan. You can pay off the balance in full or in fixed monthly installments over 10-20 years.
HELOCs usually come with a variable interest rate and a minimum monthly payment. You can just make the minimum payment or pay more toward the principal.
There may be additional fees associated with your HELOC such as an origination fee, annual fee, or early closure fee. Contact one of our HELOC lenders in Illinois to learn more about HELOC terms.
Why a HELOC over a Home Equity Loan?
As you may already be aware, a HELOC isn’t the only way to tap your home equity for affordable financing. The other option is a Home Equity Loan, which is a term loan with a fixed interest rate. You receive a lump sum when the loan closes and then repay it in monthly installments. So, why would someone choose a HELOC over a Home Equity Loan?
As with regular mortgage loans, there are closing costs associated with HELOCs and Home Equity Loans. While these fees can vary widely, the average is 2%-5% of the loan amount or credit line limit. Overall, closing costs on HELOCs and Home Equity Loans are usually lower than with first mortgages, in part because the amount borrowed is also usually lower. Look for special offers, such as a no-fee HELOC, or negotiate with your lender to reduce closing costs. Contact one of our HELOC lenders in Illinois to learn more about HELOC closing costs.
A HELOC is great if you aren’t sure exactly how much you’ll need to borrow. You don’t have to use the entire credit limit right away and you’ll only accrue interest on the amount borrowed.
Since HELOCs come with variable interest rates, the rate could potentially adjust down as well as up, depending on the benchmark. Also, you will only pay interest on the amount you draw, as opposed to a home equity loan where you take out a lump sum.
A Home Equity Loan is a big commitment with monthly payments due right away. Those payments will be a permanent part of your budget until the loan is paid off. On the other hand, HELOCs offer an interest-only payment option, so you can choose that when your budget is tight, paying more toward the principal when you can.
Advantages and Uses of a HELOC
If you’re wondering what can a HELOC be used for, some of the most common purposes include:
- Can be used for Debt Consolidation to combine multiple monthly payments into one and reduce the interest paid on credit cards, student loans, or other higher interest debt.
- Lower interest rate than a personal loan or credit card.
- Funds are available & accessible as needed during the draw period. Can be paid off without closing the line of credit.
- Typically allows you the option to make interest-only payments
- Great for smaller home improvement projects such as HVAC upgrades, new appliances, new floors, windows.
- Helpful to have a HELOC open in case of unexpected or emergency expenses such as large medical bills, car repairs, or urgent home repairs.
- Could be an option for a financial safety net or cushion if you experience a temporary loss of employment or reduced income.
Get a HELOC From Dieterich Bank in Illinois!
If you’re looking for HELOC or Home Equity Loan banks in Illinois, the Dieterich Bank team can help! Get in touch with us, visit one of our convenient locations, or call us at (800) 699-9766 to get started! If you have (or open) a Dieterich Bank checking account, you’ll get the convenient benefit of being able to advance the funds yourself, instead of having the bank do it for you.
Planning a big project or have unexpected expenses? The equity in your home can be converted to affordable financing. To help you understand HELOCs further, explore our Home Equity Line of Credit Calculator. Our customers love our very competitive HELOC program! Ready to get started with a HELOC?
Equal Housing Lender. Member FDIC. *2.99% Introductory Annual Percentage Rate (APR) is available on Home Equity Lines of Credit with a 90% or less loan-to-value (LTV). The introductory interest rate will be fixed at 2.99% APR during the nine-month introductory period. Offer is available for new applications submitted starting May 1, 2022. Offer may end without notice. After the nine-month introductory period: the APR is variable and is based upon an index plus a margin. The APR will vary with Prime Rate (the index) as published in the Wall Street Journal. The rate will not vary below 4.000% for <80% LTV and 5.000% for >80% LTV (the floor), with the exception of the introductory APR, or above 21% (the ceiling). Interest only payments may cause your monthly payment to increase, possibly substantially once your credit line transitions to the repayment period. In addition, a one-time large payment may be required to pay off your line of credit balance. $50 fee assessed yearly. Closing Cost fees between $948-$1,849 may apply. The borrower may advance $5,000 or more on the initial advancement to avoid closing costs and $50 annual fee. This offer is subject to normal credit qualifications and program guidelines. Rates are subject to change without notice. Property insurance is required. Consult your tax advisor regarding the deductibility of interest. Other restrictions may apply.