One of the most valuable benefits of homeownership is the ability to borrow against the equity you build up in your home over time. Many people turn to borrowing options, such as taking out a home equity line of credit (HELOC) to help cover large expenses like home improvements or education costs. Read on to learn how HELOCs work and what to know before making a decision.
A home equity line of credit, or HELOC, is a revolving line of credit available to you based on the equity you have in your home. HELOCs may have lower interest rates than other loans, and the interest you pay may be tax-deductible when used to substantially improve your home.
Not to be confused with a home equity loan, a HELOC lets you borrow against the available equity in your home up to your credit limit. You can use your line of credit as often as you want throughout your borrowing period (or draw period), which is usually 10 years.
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When using your HELOC, you’ll receive a monthly bill for your minimum payment. Some lenders only require interest payments during the borrowing period. Others have you pay principal and interest, which may help keep your payments more consistent over time. The amount due may change based on your balance and interest rate fluctuations. Making extra principal payments helps you pay less interest and reduces your overall debt more quickly. Like a credit card, as you repay your outstanding balance, the amount of available credit is replenished. At the end of your borrowing period is the repayment period. During this time (usually around 20 years), you can no longer take out money and you must pay off what you owe.
When you take out a HELOC, your home equity acts as collateral for the loan. This means that if you default, the lender could foreclose on your home, so it’s important to carefully consider what you’re borrowing for and make sure you have a plan to pay it off.
To qualify for a HELOC, you need to have enough equity in your home. Typically, you can borrow up to 85 percent of your home’s appraised value minus what you still owe on your mortgage or other loans secured by your home. Your lender will look at your credit score and history, employment history, monthly income and monthly debts. A better credit score improves your chances of qualifying and could lower the interest rates you’ll receive.
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Ask your lender what fees might come with your HELOC, such as an application fee, an annual fee, closing costs and a cancellation or early closure fee.
When your HELOC has a variable interest rate, it can change from month to month. That’s because the rate is calculated on an ongoing basis using an index and a margin.
An index is a financial indicator that banks use to set rates on many consumer loans. Most banks use The Wall Street Journal prime rate as the index for HELOCs. The index, and consequently your HELOC interest rate and required payment, can move up or down.
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A margin is the number of percentage points added to the index by your lender, and it remains constant throughout the life of the line of credit.
Some lenders allow borrowers to convert some or all of the outstanding variable-rate balance on a HELOC to a fixed rate. Payments are predictable, and this option can protect you from rising interest rates. Fixed interest rates on a HELOC are typically higher than variable HELOC rates.
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Home Equity Line Of Credit (heloc) From Bank Of America
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Prime Rate (Prime) minus 1.01%; that results in the APR stated above, and can change periodically based on Prime. No customer or other discounts are available during the Variable-Rate Introductory Period. See Home equity assumptions link for important additional information. Rates are for illustrative purposes only, are subject to change without notice, and assume a borrower with excellent credit.
Set up and maintain automatic monthly payments from your Bank of America checking or savings account and receive a 0.25% interest rate discount (doesnotapplytoBill Payservice) adatext .
There's no fee to apply, no closing costs (on lines of credit up to $1, 000, 000) and no annual fee. There's also no fee to convert your variable-rate balance to a Fixed-Rate Loan Option.
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Submitting your application takes about 15 minutes. When you're done, we'll show you how to check your application status and securely upload documents.
You have the flexibility to decide when and how much to use (up to your available credit limit) through Online Banking, by phone, at our financial centers or with no-access-fee checks.
Submit your secure application online - there's no fee and no obligation, and it only takes about 15 minutes. Start your application now or Complete a saved application
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Our experienced specialists will help you every step of the way – and if you decide that predictable monthly payments for a fixed term is best for you, they’ll help you with a Fixed-Rate Loan Option.
Save time and securely upload documents online. If approved, you can enjoy the convenience of closing at a financial centerfinancial center of your choice. After that, you can easily access your new home equity line of credit as
Learn about how a home equity line of credit works and how it may help you realize your goals – from covering unexpected expenses to paying for educational costs and funding home renovations.
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A home equity line of credit, or HELOC, could help you achieve your life priorities. At Bank of America®, we want to help you understand how you might put a HELOC to work for you. A HELOC is a line of credit borrowed against the available equity of your home. Your home's equity is the difference between the appraised value of your home and your current mortgage balance.
Through Bank of America, you can generally borrow up to 85% of the value of your home minus the amount you still owe.
For example, say your home's appraised value is $200, 000. 85% of that is $170, 000. If you still owe $120, 000 on your mortgage, you'll subtract that, leaving you with the maximum home equity line of credit you could receive as $50, 000.
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Much like a credit card, a HELOC is a revolving credit line that you pay down, and you only pay interest
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