Homeowners with equity in their property might want to consider a Home Equity Line of Credit (HELOC) to meet big expenses that sometimes come out of left field when we least expect it. That being said, many property owners shy away from this option due to misinformation and misconceptions, so here is a list of the top 5 myths people have about HELOC’s.
Top 4 HELOC Myths
A Home Equity Line of Credit is the Same as a Home Equity Loan
According to Bankrate.com, a home equity line of credit (HELOC) works more like a credit card. You are allowed to borrow up to a certain amount for the life of the loan — a time limit set by the lender. During that time you can withdraw money as you need it. A home equity loan, sometimes called a term loan, is a one-time lump sum that is paid off over a set amount of time, with a fixed interest rate and the same payments each month. Once you get the money, you cannot borrow further from the loan.
After becoming a homeowner, I have to wait several years to take out a HELOC
As the security against a HELOC loan is found in the equity of the home, as soon as you own the home you have access to its equity. There is no time requirement between the purchase of the home and applying for a HELOC.
I Can Use My HELOC as an Overdraft Protection for my Checking Account
The ease in which HELOC funds appear in your account leads many homeowners to think that they can use their HELOC as a way to protect their checking account with overdraft protection, but this is not the case.
HELOC’s are Impossible to Get
Lenders are looking closer at these types of loans so on average they may take 4-8 weeks according to the Wall Street Journal. While they are more difficult to get than they were a decade ago, they are still a viable financing option for certain homeowners.