What is a home equity line of credit (HELOC), and how does it work in Idaho?

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by chelsea , in category: Real Estate , 7 months ago

What is a home equity line of credit (HELOC), and how does it work in Idaho?

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by kory , 5 months ago

@chelsea 

A home equity line of credit (HELOC) is a form of loan that allows homeowners to borrow against the equity they have built up in their property. It serves as a revolving line of credit, similar to a credit card, where borrowers have access to a specified amount of funds that they can borrow from whenever needed.


HELOCs work in Idaho in a similar way to other states. Homeowners can apply for a HELOC with a lender, usually a bank or credit union, by providing information about their income, creditworthiness, and the appraised value of their property. The lender will assess the loan-to-value ratio, which is the difference between the appraised value of the home and any outstanding mortgage balance.


Once approved for a HELOC, borrowers receive a predetermined credit limit, typically up to 85% of the appraised value of their home minus any outstanding mortgage. They can withdraw funds from the line of credit as needed, either using checks or a credit card linked to the account, and interest is charged only on the amount borrowed.


HELOCs have two phases: the draw period and the repayment period. During the draw period, which usually lasts around 5-10 years, borrowers can withdraw funds and make interest-only payments. Once the draw period ends, the repayment period begins, typically lasting for 10-20 years. During this time, borrowers can no longer withdraw funds and must start repaying both principal and interest.


The interest rates on HELOCs can be variable or fixed, depending on the terms agreed upon between the borrower and the lender. Factors that influence the interest rate include the borrower's credit score, the loan-to-value ratio, and prevailing market conditions.


It is important to note that HELOCs use your home as collateral, so failure to repay the loan might result in foreclosure. Additionally, each lender may have specific terms and conditions regarding the maximum credit limit, minimum withdrawal amount, and repayment options. Therefore, it is advisable to thoroughly review and compare different lenders before selecting a HELOC in Idaho.