Most Baby Boomers owe less on their homes than the current market value. This “equity” can be tapped much like a credit card through a Home Equity Line of Credit (HELOC). For Boomers who want a safety net for unexpected expenses, a HELOC may be the right solution.
Here are the “ABC’s” of a HELOC:
- Amount that can be borrowed: Generally up to 80 percent of home equity as verified by an appraisal.
- Closing costs: Can be $0, depending upon lender.
- Current interest rates: Variable rates, starting at 5.5 percent, with a cap of eighteen percent depending on market factors. Some lenders offer a fixed rate. Your rate depends on the amount of home equity and your credit rating.
- Loan duration: Usually a minimum of 10 years, but can be up to 20-30 years.
- Funds availability: Via a checkbook or credit card.
- Minimum monthly payments: Determined by lender.
- Is the interest tax deductible: Yes, if borrowed funds are used for home improvement.
- Gotchas: Loan duration, possible balloon payments at end of draw period, closing costs vary by lender, possible transaction fees.