The average cost of a wedding these days is approaching $30,000 – nearly as much as the median annual U.S. wage of $34,000. Not everyone believes they have that kind of money socked away for the joyful day, but many do – right over their heads.
This is because the average homeowner is holding about $185,000 in home equity, and that can be parlayed into a pre-approved line of credit called a home equity line of credit (HELOC). And it may be especially beneficial as interest rates rise.1
A HELOC is essentially a second mortgage that provides the homeowner a line of credit that is based on the home’s equity. It is different from a traditional home equity loan because the money in a HELOC only becomes debt when the homeowner draws on the line of credit. A home equity loan is a fixed sum the homeowner borrows all at once and then must pay back.2
Because the home is collateral, a HELOC often comes with attractive interest terms, which come in two parts: the withdrawal period and the payment period. During the withdrawal period (often 10 years), any payments are typically interest-only. The principal is added in the payment period.3
Due to this structure, a HELOC can be a more affordable, accessible, and flexible alternative to personal loans or credit card debt. And because the line of credit does not become debt until it is used, it serves as a safety net of sorts.
If the homeowner has trouble making various debt payments, it may make sense to consolidate them into one longer-term loan.
If expenses sidelined your college studies, or if someone in the household wants to pursue an advanced degree, a HELOC can help you pay as you go, for years.
HELOCs are relatively easy to apply for – as long as the homeowner has 15% to 20% equity, a lender will likely say “we do” to a HELOC proposal in a day.
A holder of a HELOC has access to the funds until the expiration date. So, if a second child plans a wedding a year after the first, it can help with both.
All those weddings may inspire the homeowners to renew their own wedding vows with an anniversary party. Big or small, they only have to pay back what they borrow.
From a weekend getaway to a lifetime adventure in the Galapagos Islands, the HELOC borrower has full control of how much money to withdraw. And the borrower only pays interest on the amount drawn.4
While HELOCs generally have varying interest rates, the borrower may qualify for a fixed rate. That’s one less thing to keep them up at night when the baby arrives.5
A new family member means higher health costs. The average health insurance premium for a family of four in 2022 was $1,500, while individual deductibles in 2021 were $1,700.6
People often expand their homes to include offices or baby rooms. Budgets often exceed expectations. The HELOC’s flexibility has you covered.
A new home office may mean a new business. Plan the budget timeline diligently, however. Once the “draw” period ends, the borrower cannot borrow more money against the HELOC.
And note that HELOC borrowers don’t have to use the same lender that underwrote their mortgage for that getaway.7
So, you didn’t plan for that leaky roof, the busted pipes, or the fallen tree. HELOC is here to the rescue.
A small bathroom remodel can take three to seven weeks to complete.8 But the borrower can start making payments even before the new toilet gets its first flush.
The HELOC doesn’t care if the renovation includes necessary ventilation or those eye-catching crystal cabinet knobs. But choose wisely and don’t go over the credit limit.
A HELOC line of credit doesn’t stop at the property line, but it does appreciate paying for something that appreciates your home’s value.
Invest in the memories now; enjoy the investment for years. And during the HELOC’s draw term, the line of credit can cover maintenance costs.
Because small construction projects, like a deck, patio, or porch, can be deceptively pricey – even the DIY ones.
HELOCs don’t care how they are used. It only matters that they are used responsibly.
Because HELOCs are equal-opportunity lines of credit.
Life expectancy among Americans is now 79 years,9 and many want to spend those years in the homes they love. A HELOC can help cover the costs of renovations that will make the home accessible as its owners age, so they can age in place.
Home efficiency measures, from insulated windows to solar panels, translate to energy savings that can go toward paying down the HELOC loan.
The HELOC’s financial pillow provides invaluable peace of mind when those 4 a.m. “worries” hit. And remember, no payments are due unless money is drawn.
You can control the choice of the home you buy, but what happens inside and outside that home over the life of the mortgage is often unexpected. A HELOC prepares the homeowner to control surprise expenses and responsibly plan expected investments – all 22+ of them.
To learn more about HELOCs, compare loan options, and even apply, click here.
1 “The average mortgage holder has a record $185,000 in equity. What to know if you’re tempted to borrow from that,” By Lorie Konish, CNBC.com, Feb. 28, 2022; https://www.cnbc.com/2022/02/28/homeowners-hold-record-equity-what-to-know-if-you-want-to-borrow.html
2 “Requirements for a Home Equity Loan and a HELOC,” By Taylor Getler, NerdWallet, March 7, 2022; https://www.nerdwallet.com/article/mortgages/what-are-the-requirements-for-a-home-equity-loan-and-heloc
3 “Home Equity Loan vs. HELOC: What’s the Difference?” By Amy Fontinelle, Investopedia, March 17, 2022; https://www.investopedia.com/mortgage/heloc/home-equity-vs-heloc/
4 “HELOC Vs. Home Equity Loan: Pros and Cons,” By Holden Lewis, NerdWallet, May 15, 2020; https://www.nerdwallet.com/article/mortgages/home-equity-loan-line-credit-pros-cons
5 “Home Equity Loan vs. HELOC: What’s the Difference?” By Amy Fontinelle, Investopedia, March 17, 2022; https://www.investopedia.com/mortgage/heloc/home-equity-vs-heloc/
6 “The Average Cost of Health Insurance in 2022,” By Deb Gordon, MoneyGeek, March 1, 2022; https://www.moneygeek.com/insurance/health/average-cost-of-health-insurance/
7 “Can I Use a Home Equity Loan to Buy Another House?” By Alaya Linton, Value Penguin; March 18, 2022; https://www.valuepenguin.com/mortgages/can-i-use-home-equity-loan-to-buy-another-house
8 “How Long Does it Take to Renovate a Bathroom?” Smart Remodeling, March 21, 2022; https://www.smartremodelingllc.com/blog/how-long-does-it-take-to-renovate-a-bathroom
9 “U.S. Life Expectancy 1950-2022,” MacroTrends; https://www.macrotrends.net/countries/USA/united-states/life-expectancy
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