There are few things in life better than a pop quiz. A rush of unpreparedness, butterflies in your stomach, cold sweats…Ah! The thrill of it all! Let’s revisit those painful school memories, shall we?
Question 1: A HELOC is…
a) Nothing…it’s not real. Don’t look at me. I DIDN’T STUDY I WASN’T EXPECTING THIS.
b) A beautiful and terrifying cross between He-Man (The Most Powerful Man in the Universe) and a Morlock (a fictional species created by H.G. Wells for his 1895 novel, “The Time Machine”).
c) Also known as a home equity line of credit, a HELOC is a mortgage that’s similar to a credit card.
d) All of the above.
Pencils down. If you answered B, I applaud your imagination and reference level (and if you want to draw a picture of this wonderful beast, please be sure to send it to email@example.com). But the correct answer, ladies and gentleman, is C. Let’s take a closer look at the wonderful world of HELOCs, shall we?
What Is a Home Equity Line of Credit?
Let’s say you want something. Maybe you need a new roof on your house, or you want to take a vacation, or maybe you just have so many geeks in your life that you need some extra cash to afford all the nerdy holiday gifts you require this season. A home equity line of credit can help you with that. Using the equity in your home, a HELOC allows you to borrow, pay off and re-borrow funds that you can use for whatever you want. It’s kind of like using a second mortgage like a credit card.
Pros and Cons of HELOCs
There are advantages and drawbacks to getting a HELOC. Here are a few:
- YAY – Interest rates on HELOCs tend to be very low!
BOO –HELOCs are similar to an adjustable rate mortgage, but without adjustment caps, so your rate can go up or down as the market changes, meaning that low introductory rate may not be low forever.
- YAY – You are only charged interest if you withdraw the money!
BOO – Like a credit card, you can be tempted to spend beyond your means.
- YAY – Starting a HELOC is usually low cost. There tends to be a small fee for setting up the account, and an annual fee for keeping it open, and some HELOCs may not have any closing costs.
BOO – There are lots of ways costs can add up with HELOCs. Some HELOCs have interest-only payments or prepayment fees that can lead to high costs down the road. Fluctuating monthly payments due to interest rate adjustments can make it difficult to budget and plan.
Does Quicken Loans Offer HELOCs?
No, Quicken Loans does not currently offer HELOCs. However, a Home Loan Expert can talk to you about your financial goals and help you make the decision that’s right for you.
If the interest-only period of your HELOC is expiring soon, you might want to consider refinancing to get out of your HELOC. You can roll your HELOC into your new mortgage and make one low monthly payment, which could save you from fluctuating payments or large jumps in your monthly payment.
Everyone’s financial situation is different, so be sure to consider all of the pros and cons and speak to a professional before deciding what’s right for you. And look out for that other kind of HE-LOCK. You know, the one I made up at the beginning of this post that is living a constant internal struggle between good and evil, never knowing whether to give in to his cannibalistic instincts or fight Skeletor for the good of all mankind. That one.
Thoughts, questions, concerns about HELOCs or HE-LOCKs? Let us know about it in the comments!