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Home Equity Lines of Credit

There are a handful of benefits homeowners can reap by opening home equity lines of credit (HELOC), which allows you to use your built-up equity to secure low-cost funds. This is a great way for homeowners to receive cash for renovations, big purchases, or debt consolidation.

How Does a HELOC Work?

A HELOC is a set amount of cash that can be used in any way and is repaid over time — it functions very similarly to a credit card and typically has a fixed interest rate that is significantly lower than other personal loans. The difference between the value of your home and your mortgage balance is the amount of equity you build over time, and a HELOC uses that equity to secure the loan. Essentially, your home is used as collateral in exchange for a revolving line of credit.

As you continue to pay the outstanding balance on your line of credit, the amount of available credit goes up again in the same way a credit card would. You can use as little or as much as you choose to throughout the draw period up to the credit limit originally agreed upon.

Draw Period Versus Repayment Period

The first phase of a HELOC is the draw period, which is typically 10 years, in which you can access your funds in any amount at any time. During the draw period, you will only be required to make small interest-only payments and there are no interest payments on unused funds.

Draw periods can sometimes be extended if requested, but after the draw, the period comes the repayment period. During this time you can no longer receive additional funds and you must pay the principal plus interest payments until the balance is fully paid off. Most repayment periods are 20 years. Do keep in mind that the repayment period can nearly double your monthly payments, so it is key to be prepared for that sudden rise in expenses.

Applications For a HELOC

The ways in which you can use the funds you receive from a HELOC are truly up to you. If you want to splurge on a vacation or buy a boat, you can choose to do so. It is important to consider whether using your home equity as collateral is worth what you decide to spend the funds on.

Some of the most common uses of a HELOC include:

  • Renovations and remodeling projects to increase the value of your home
  • Debt consolidation for reduced interest
  • Covering education expenses
  • Making major purchases

Need Help?

At Republic Bank of Chicago, we offer home equity lines of credit to help you tackle whatever it is on your to-do list, whether it’s one of the items above or something else. We help you put your home to work for you, and with a low rate for 12 months, you can be on your way to securing the funds you need to bring your projects to life or meet whatever needs you may have. Visit our website to learn more about our home equity lines of credit and give us a call at 800-526-9127 to get started!

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