A home equity line of credit (HELOC) or secured line of credit (SLOC) is a flexible way to borrow money against the equity you have built up in your home.  It is a revolving line of credit, meaning you can borrow, repay and borrow again as long as you stay within your credit limit.  In this post we will discuss Alterna’s HELOC/SLOC, how to qualify, tips before getting one, questions to ask lenders and the advantage and disadvantages of using a HELOC/SLOC.

Alterna’s Home Equity Line of Credit/Secured Line of Credit

Based on the amount of equity you have in your home, the HELOC/SLOC allows you to borrow up to a certain limit.  The interest rate is variable and tied to the prime rate.  You can borrow, repay and borrow again, as long as you stay within your credit limit.  You can purchase protection for your HELOC/SLOC to cover payments in the event of death, disability or critical illness with rates based on the amount you owe.  For more information click HERE.

Qualifying for a Home Equity Line of Credit/Secured Line of Credit

To qualify you will need to have sufficient equity in your home.  Your lender will look at your debt-to-income ratio to ensure you have the ability to pay your debts. Lenders will also look at your credit score, income, and employment history to qualify.

Tips Before Applying for a Home Equity Line of Credit/Secured Line of Credit

Before you apply here are two things to keep in mind:

1. Know your credit score.

Your credit score plays a significant role in determining if you qualify for a HELOC/SLOC and the interest rates you will be offered.  You can access your credits score for free from Transunion or Equifax.

2. Consider your repayment plan

Plan to ensure you can make your payments on time and avoid getting into financial trouble.

Questions to Ask When Applying

1. What is the interest rate? Is it fixed or variable?
2. Are there any fees associated with a HELOC/SLOC?
3. What is the credit limit and how is it determined?
4. What are the repayment terms and how much will my monthly payment be?
5. What happens if I can’t make my monthly payment?

Advantages and Disadvantages of a Home Equity Line of Credit/Secured Line of Credit

Advantages:

1. Flexibility: You can borrow, pay, and borrow again as long as you stay within your credit limit.
2. Lower Interest Rates: HELOCs/SLOCs often have lower interest rates than credit cards and personal loans.
3. Lower Minimum Payments: Your repayment obligation is interest-only. It should be noted, if you only make the minimum payment, you will never pay off the HELOC/SLOC.

Disadvantages:

1. Risk of Foreclosure: As with all borrowing that is secured by your property, if you fail to make your payments, it could result in foreclosure of your home.
2. Variable Interest Rates: Your payments may increase over time if interest rates increase.
3. Temptation to Overspend: With access to more money than you may need, there is a temptation to overspend.

A home equity line of credit can be a good way to help in times of need, but you need to have a plan. Make sure you research all aspects such as the type of HELOC/SLOC, what the qualifications are and requirements for repayment.  Once you have your HELOC/SLOC, make a plan for repayment before making large expenditures to prepare yourself for the upcoming payments.  If you need help determining if a HELOC/SLOC is right for you or applying, contact your Alterna banking representative and they can help.

If you would like to learn more or apply you can schedule an appointment with an expert.

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