Make the Most of Your Home’s Equity

What is a HELOC?

A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by the equity you’ve built in your home. It works a lot like a credit card: you’re approved for a certain amount, and you can borrow from that amount as needed. The key difference? A HELOC typically offers lower interest rates because your home is used as collateral.

If you’re a homeowner, you may have built up substantial equity in your home over time. Using a HELOC is a flexible financial tool that allows you to tap into equity when you need it. At Texas Bay Credit Union, we have an award-winning team that can help you understand how a HELOC works, its benefits, and how to use it wisely.

The Two Phases of a HELOC

Your HELOC has two main stages:

• Draw Period (Typically 3-5 Years)
  • Borrow funds as needed.
  • Make interest-only payments on the amount you use.
  • Similar to a credit card, you can reuse the available credit as you pay it down.

• Repayment Period (10-20 Years)
  • No further withdrawals are allowed.
  • You’ll repay both principal and interest in monthly installments.

Best Ways to Utilize Your HELOC

A HELOC can be a powerful tool. Some of the most common and strategic ways to use your line of credit are:

Home Improvements: Renovations that increase your home’s value (like a kitchen upgrade or a new roof) can be a great investment.

Education Expenses: Fund tuition or other school-related costs at a lower rate than some student loans.

Emergency Funds: A HELOC can serve as a financial safety net for unexpected expenses.

Debt Consolidation: Pay off or consolidate high-interest credit cards or loans into one manageable payment.

Starting a Small Business: Use the funds to launch or grow your small business.

When to Avoid Using Your HELOC

While a HELOC offers flexibility, it’s important to avoid using it for:

• Extravagant Vacations
• Luxury Items
• Risky Investments

Remember: Your home is on the line, so use your HELOC thoughtfully.

Understanding Your HELOC Rate

HELOC rates are variable, meaning they fluctuate based on market conditions. Your rate is tied to the U.S. Prime Rate plus a base margin set by your lender. This means your rate can go up or down depending on how the Prime Rate changes.

Common HELOC Fees

When setting up a HELOC, you may encounter a few standard fees such as:

• Appraisal Fees (to assess your home’s value)
• Titling Fees
• Annual Maintenance Fees
• Closing Costs (Similar to a mortgage)

Be sure to ask your lender about all possible fees upfront, so you’re not surprised.

Tax Advantages of a HELOC

In some cases, the interest you pay on a HELOC may be tax-deductible if the funds are used to buy, build, or substantially improve your home. Be sure to consult with a tax advisor to understand what applies to your specific situation.

Work with Our Award-Winning Team

Every financial situation is unique. That’s why we encourage you to speak with one of our Home Equity Specialists. They will walk you through your options, answer your questions, and help you determine whether a HELOC is the right fit for your financial goals. Schedule an appointment or visit a local Texas Bay branch today!