Even if you bought your home recently, property prices may have boosted your amount of home equity. This is because equity is comprised of two numbers: the amount of your mortgage you've repaid, plus any rise in appraised value. If you have over 20% equity in your home, you may be able to tap into your investment with a home equity line of credit (HELOC).
A HELOC is a credit product that uses your home as collateral. It's often used to finance major purchases, such as home renovations or college tuition, although you can keep HELOC funds as a source of emergency funds as well.
A HELOC is a secured form of credit. "Secured" means that the loan is backed by your home. Since it's revolving credit, you can borrow what you need, when you need it. For instance, you could use some HELOC funds to renovate a bathroom this year and buy a used car with HELOC funds two years later.
When a HELOC's term ends (usually five to 10 years), repayments begin. While these are generally interest-only, you'll save on interest if you repay the entire sum sooner rather than later. It's best to only withdraw what you need from a HELOC so your repayments will be lower.
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