Laura interviews Mike Kinane, a HELOC expert and Senior Vice President for Consumer Lending at TD Bank. They discuss just about everything current or future homeowners need to know about getting a home equity line of credit. You'll learn how you can spend funds, amounts you can borrow, qualification guidelines, potential fees, rules for claiming interest as a tax deduction, and what to do when interest rates are moving up.
If you’re a homeowner or want to be one someday, one of the biggest benefits is having equity, which is the difference between what your property is worth and what you owe for it. One of the most flexible and least expensive ways to tap your equity is called a home equity line of credit or HELOC.
In my interview with Mike Kinane, HELOC expert and Senior Vice President for Consumer Lending at TD Bank, we cover just about everything you need to know about these loans, including:
- The difference between a HELOC and a home equity loan
- How much you can typically borrow
- What banks are looking for to approve you in today’s tighter lending environment
- What to do if one spouse or partner has good credit but the other has poor credit
- Fees and interest rates to expect—plus a tip to get an even lower rate
- Rules for claiming tax deductions on the interest you pay
- What to know about having a HELOC when interest rates are rising, like we see now
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8 Things HELOC Borrowers Should Know
Savvy homeowners know how to take advantage of their equity in responsible ways. Here are 8 things current and potential HELOC borrowers should know:
1. HELOCs can be used for anything you like. According to TD Bank’s Home Equity Sentiment Index, the top three reasons consumers get a HELOC are home renovations and improvements (64%), major home purchases (27%) and debt consolidation (25%). But they can be used for any purpose, such as paying for a child’s education, a vehicle, or emergency expenses.
2. HELOC approval depends on various factors such as your credit, the value of your home, and existing debt already secured by your home.
3. HELOC interest rates may be affected by the Fed. Variable-rate HELOCs are tied to the prime rate. So, when the Fed raises rates, your minimum monthly HELOC payment will go up slightly.
4. HELOCs have fixed-rate options which can be attractive when interest rates are moving up. You may have the option to convert a variable-rate HELOC into a fixed-rate product, or a hybrid of both, based on your financial needs.
5. HELOCs typically come with two phases, a draw period and a repayment period. The draw is usually the first 10 years, when you pay interest only on amounts taken from a HELOC. After a reset date, you begin paying interest and principal on the loan, which accelerates repayment at a higher monthly amount.
6. HELOCs come with tax benefits that reduce your net interest rate.
7. Missing HELOC payments can cause your rate to rise just like credit card issuers can hike your rate as a penalty for paying late.
8. HELOCs give you flexibility to borrow against your home’s equity as needed. Most home equity loans range up to $100,000 and only charge interest on amounts you choose to take out.
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