Want to access the equity in your home without refinancing or selling? Consider using a home equity line of credit!

Contemplating a move but don’t know where the funds for that new purchase would come from?  Using a home equity line of credit (HELOC), you could have that money available without liquidating investments or dealing with the headache of a simultaneous close.  Maybe you love your home and want to buy a vacation home or investment property.  Perhaps you have kiddos graduating Silver Creek soon and you’re looking ahead toward college expenses.  Whatever the inspiration or need, tapping home equity for extra cash is a smart idea.

How does it work?  A HELOC is a revolving line of credit tied to the equity in your home.  Like a mortgage, how much you qualify for is based on credit score, your ability to repay, and the appraised value of your home compared to the amount of mortgage you already have.  Most HELOCs allow a combined loan-to-value (CLTV) of between 80 and 90 percent of appraised value.  Terms are typically 10 years with a variable rate based on Prime plus or minus a margin.  Payments are interest only with a balloon payment of any outstanding balance due at the end of the loan term. Like a credit card, you only pay when you have a balance, and the payment is based on the balance and interest rate at the time. Unlike a credit card, the interest you pay on a HELOC may be tax deductible.  Ask your CPA about your specific tax savings.

Risks?  The biggest risk is the variability of the rate which impacts how much you pay.  The Prime Rate is tied to the Fed Funds Rate, a tool the Federal Reserve Bank uses to manage inflation and impact how money flows in our economy.  We know from recent experience that this rate fluctuates dramatically.  In April of 2022 Prime was 3.5%.  As of July 15, 2023, Prime is 8.25%.  At 3.5% an interest only monthly payment on $100,000 was $292.  A year later, at 8.5% that same $100,000 now costs $708! The other risk is that we got used to home prices increasing year-over-year in Boulder County.  There may be years when your home doesn’t increase in value quite as quickly and any debt you add is money you will have to pay off when you sell.

Benefits? Maybe the best thing about a HELOC is that you only pay when you use the money.  If you’re thinking about buying another home, getting a HELOC before you need it can save your family the stress of trying to find the cash for earnest money, down payment, and funds needed for repairs and other expenses.  If you access the funds now before you need them, you may also avoid a contingent offer on your next home – which not only saves you the stress of a double move, it makes you a much stronger buyer for that home of your dreams. Let's assess your Home Equity Line of Credit options to create access to facilitate life's evolving needs!  Liana is ready to help you with the next steps by calling (303) 601-5197 or emailing at liana@grovescapital.com.