A Primer On HELOCs

BY: Desiree Wood

Life has a way of throwing you curveballs when you're least expecting them. How you're able to overcome unforeseen challenges largely depends on your ability to plan ahead, and a byproduct of that forethought is often financial stability. A home equity line of credit (HELOC) can provide you peace of mind both for planned projects and future unexpected expenses.

A HELOC is an open-end, revolving line of credit secured by one's home. Because it is a line of credit, the holder can draw on it when cash is needed, only paying interest on the outstanding balance. The interest rate, which is variable, is tied to the prime rate of interest. (Rates are typically much less than those paid on most credit cards.) A HELOC usually has a fixed term, with an annual fee, and while there may be some costs incurred when opening one, they are far less than those associated with a first mortgage. 

While versatile, HELOCs are most commonly used for home improvements; if used for this purpose, the interest paid may be tax-deductible. HELOCs can also help to cover a large purchase, fund a child's college education, or consolidate debt. They offer the liquidity needed to put a down payment on a new home, or to purchase a vacation home. Even without a significant impending project or purchase on the horizon, some people choose to maintain an open HELOC with no balance, simply for emergency purposes. 

Your home is most probably your largest asset – using it as collateral can help you navigate all sorts of situations throughout the various stages of your life. An open line of credit can be a valuable tool. As with anything, though, it is important to do your research and see what makes the most sense for you.

To discuss HELOCs and how they may help you, call your local State Bank of Cross Plains office today.

Desiree Wood

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