(Mar 27, 2023)
You can use your home equity to access low-cost funding through a home equity line of credit (HELOC). A HELOC loan comes in handy when you need an extended line of credit, but you don't prefer using a credit card because of the high-interest rates.
So, your home's equity works as collateral in a HELOC, which offers you more affordable access to cash than a credit card.
Taking out a HELOC is an excellent way to help you achieve your goals, such as consolidating debt, renovating your house, or paying for education.
Read on to learn more about HELOC loans' benefits and how they work. You will also discover the best places to have ice cream in Alachua County.
What is HELOC Loan?
HELOC is a form of revolving credit and works like a credit card. You can make payments using a credit card or write a check linked to the HELOC account. Your credit limit depends on your home's equity. And you may borrow any amount you need, provided you do not exceed the maximum limit.
Most HELOCs have a draw period and repayment period. You borrow from the account during the draw period and make the monthly interest payments. After that, you have the option to renew your credit line or start paying back the outstanding amount. You can pay the loan in full or over 10 to 20 years during repayment.
Since HELOCs are lines of credit, you only pay for what you borrow, not the total amount. Your payments may fluctuate over time because HELOCs charge variable interest rates. You'll also enjoy certain tax advantages, including interest deductions, that you may not have access to with other lines of credit.
Most importantly, you can use HELOC as your primary or secondary mortgage. HELOCs can be used as primary mortgages if you don't already have one or as second mortgages if you have an existing one. Generally, taking out a HELOC means borrowing against the equity in the property, which is the value of the property less the first mortgage.
How Does HELOC Work?
The amount of credit you'll qualify for a HELOC depends on your home's equity, though you don't have to take out the entire amount of credit. You can borrow up to the specified maximum limit, like a credit card. And as you pay down your monthly balance, more credit becomes available.
HELOC loans have two phases, which are the draw and repayment periods. In the draw period, you can borrow a small or substantial lump sum within your credit limit. The draw period lasts between five to ten years, and during this time, you can repay and keep borrowing until the period ends.
For this period, you only need to pay interest on the borrowed amount, not the entire line of credit. There is no penalty if you decide to pay off the outstanding balance before the draw period ends. But you cannot continue to borrow funds once the repayment period starts.
The repayment period begins after the draw period ends. This period usually lasts between 10 to 20 years, and at this time, you will pay the principal and interest on your outstanding balance. The rate is variable, and it changes according to the prime rate. The interest rate may fluctuate, following interest rate trends throughout borrowing and repayment.
In case you still have a large lump sum due at the end of the loan or need to make a significant payment to cover any unpaid principal throughout the loan. Consider refinancing or requesting your mortgage provider to extend the period if you do not have the funds to pay the lump sum when closing a HELOC.
HELOC for Condos in Florida
A condo is a different category in terms of mortgage financing. In contrast to other types of properties, both the individual and the condo must qualify when applying for financing. This makes buying a condo in Florida challenging, especially for those with little or no financing experience.
In conventional financing, one major challenge is getting the condo approved by the homeowner's association (HOA). The lender assesses the association's finances, and the deal fails to go through if the HOA is poorly run. But with HELOC, your loan provider cannot evaluate the HOA's spending, which means the funds in reserves are not subject to scrutiny.
The lenders may choose to inspect the condo through the Limited Review process. This process is relatively simple; you must fill out a short-limited condo questionnaire. In turn, your mortgage provider will compare your answers to the loan program's requirements and determine your eligibility. Upon meeting all criteria, the condo will qualify for HELOC loans.
The statutes in Florida require HOAs to have Fidelity Bonds equal to their fund reserves. The Fidelity Bonds protect your condo against association fund embezzlement, fraud, and dishonest acts frequently associated with HOAs. HELOCs don't require you to confirm your fidelity bond coverage when analyzing your condo insurance since it's already a state requirement.
When you combine a HELOC with your primary mortgage, your down payment is lower, and you do not have to pay private mortgage insurance. Considering your primary mortgage covers 75%, you can apply for a HELOC of 15% to have 90% financing. As a result, you no longer need mortgage insurance, and the down payment drops to 10% by combining the two mortgages.
Why HELOC is Great for Divorces
Divorce often involves buying out a spouse, and HELOC loans can help you refinance and keep your home. By applying for a HELOC with a mortgage lender, you can take advantage of the equity in your home to settle your partner's share of the home equity. The HELOC sits over your current primary mortgage.
Taking out HELOC as your second mortgage doesn't affect your primary mortgage. But ensure the lender knows you're the only one on the home title when you apply. As part of the credit extension, the proceeds from the loan will pay off your ex-spouse, and you will become the sole owner of the property after closing.
Upon closing the house, your ex-spouse must deposit the title deed, and the closing attorney or the settlement agent will hold onto it until they receive the funds after the loan closes. Once your ex-spouse gets the funds, the closing attorney will register or file the deed, transferring the homeownership to you.
Using HELOC for Home Improvement and Renovations
You can make your home more livable, comfortable, and modern by investing in home improvements. One of the benefits of home improvements and renovations is that they can increase your home's value. Renovating your place and upgrading it can help you turn it into your dream home and give you a better return on your investment.
There are several ways to pay for renovations and improvements, but a HELOC is the most convenient and cost-effective option. HELOCs come with a lower interest rate since your home guarantees them. Unlike a one-time loan, HELOC is an extended line of credit, making it easier to pay for unplanned expenses without needing to reapply.
Aside from that, when you use a HELOC to improve and upgrade your home, the interest you pay may be deductible when you file your yearly federal income taxes. But the tax deduction is restricted to a specific amount determined by the combination of the first and second mortgage interest.
The Advantages of Home Equity Line of Credit
A home equity line of credit allows you to borrow as much as 90% of the value of your home, less the amount you owe on your mortgage, so this loan is suitable for those with significant home equity.
Here are some major benefits you can expect if you are eligible for a HELOC.
Flexibility
The main benefit of a HELOC is flexibility. Unlike a conventional loan, a home equity line of credit allows you to borrow as much or as little as you need.
HELOC offers you an extended line of credit instead of a lump sum at closing. It is possible to take the entire amount, settle your debt, and still use the remaining credit.
Low-Interest Rates
Since your home guarantees the HELOC, it does not pose the same risk to lenders as other loans. If you default on HELOC, your mortgage provider recovers the amount you owe after foreclosing on your home.
As a result, the interest rate is relatively higher than the mortgage rate but remains lower than most unsecured debt.
Tax Deductible
HELOCs also allow you to claim interest as a tax deduction when using the funds for home improvements. The interest on your HELOC is deductible from your taxes in specific circumstances.
To qualify, you must use the proceeds from your home's equity loan to make significant upgrades and renovations that increase the property's value.
A flexible Repayment Plan
HELOCs come with a lot of flexibility when it comes to paying them back. HELOCs usually last up to 30 years, depending on your lender and the amount you borrow. You'll only have to pay interest during the first ten years or opt to lower your balance by making principal payments before the repayment period.
Several HELOC lenders now offer fixed-rate options, allowing you to lock in an interest rate for a portion of your balance. Though there may be a charge for some fees and a higher initial interest rate, securing your rate ensures that you won't be affected by rising interest rates after you've built up your balance.
Only Pay What You Spend
A HELOC allows you to borrow only the amount you need, so you can only pay back the amount you have borrowed.
You pay for what you spend plus interest on the HELOC, just like a credit card. Unlike traditional home equity loans, the loan doesn't require repayment, regardless of whether you use it or not.
HELOC vs. Refinancing - What is the Right Choice for You?
HELOCs and refinancing allow you to take advantage of the equity in your home to fund your next project. HELOCs act as a second mortgage if you already have a current mortgage, while refinancing involves replacing your existing mortgage with a new one. Refinancing comes with new loan terms, interest rates, and monthly payments.
Determining if a HELOC is the right choice for you depends on several factors. There are many reasons why you should consider a HELOC over a refinance:
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A HELOC does not affect your original loan terms since it comes as a second mortgage with separate terms.
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You only make payments for the interest during the draw period, giving you more flexibility over your cash flow.
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A HELOC may work better for you if you want to pay less upfront. It is typical for refinancing to involve closing costs, whereas HELOCs usually do not.
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You can access HELOC Funds at any time during your draw period.
- You can use HELOC to make purchases, invest, or improve your home.
The current interest rate environment makes HELOCs a cost-effective way to access cash while preserving low mortgage rates.
You can borrow up to 90% of your home's value with HELOC. It might be the right option if you consider short-term expenses, making home improvements, or purchasing large items.
5 Best Ice Cream Spots in Alachua County, Florida
Alachua county is a beautiful north-central part of Florida and is famous for its stunning beaches, diverse culture, and popular attractions.
When you're in town after a day of sightseeing or lounging on the beach, nothing could be more refreshing than some tasty ice cream. Here are some of the best ice cream treat places in town so that you can find something you like.
Sweet Dreams
Sweet Dreams continues to serve Gainesville's best ice cream and the most exciting and unique flavors. Almost everything you order here comes with a generous amount of chocolate syrup and toppings, making it quite a sweet treat.
Pop in on Mondays to enjoy sorbet, Italian ice, and homemade ice cream. They also have non-dairy and sugar-free flavors.
Ice Cream & Crêpes Eatery
Located in Gainesville, this restaurant combines ice cream with crepes. You can choose from a variety of ice cream flavors and toppings of your choice.
This joint also serves non-dairy sorbets, milkshakes, Booble tea, Belgium waffles, and smoothies. You're sure to leave with a smile whenever you visit because of the exceptional service.
Kilwins Celebration Pointe
Chocolates with nuts, fudge, candies, and chocolate bunnies. Kilwins is an old-school confectionery with exquisite and delicious delights of chocolate in every form you can imagine. Their ice cream is of premium quality, with a rich and creamy texture.
You should try the toasted coconut, one of their fan favorites. This spot also serves other ice cream flavors; you won't miss finding what you like.
Feliz Flavors
Feliz Flavors serve fantastic ice cream options, including ice cream sandwiches and chocolates on chocolates. If you're looking for something extra, you must try their Brazillian chocolate.
You will also be lost for choice with the vast of available ice cream flavors, but the staff is ready to answer any questions, and they allow you to try the flavors.
Cold Stone Creamery
Cold Stone Creamery is an ice cream chain that offers hand-mixed ice cream, shakes, and more.
It offers a wide selection of ice cream flavors and toppings; you should try the buttery mint chocolate. You will have a great experience here, with friendly staff who will make you feel at home.
HELOC Loan - The Bottom Line
A HELOC provides you with financial flexibility, helping you achieve your dreams. It's the best way to utilize your home equity and use the funds for home renovations, repaying debt, or a second mortgage. HELOC offers numerous benefits, such as low-interest rates, tax-deductible interest, and flexibility.
A HELOC acts as a revolving line of credit, making it ideal for short-term expenses you can repay quickly. It may be a good fit for you if you wish to spend a substantial amount of money on a one-time event. As a first step toward choosing the right financial product for you, talk to a lender and explore your options.
(Mar 27, 2023)
