KeyBank: Finding extra cash in your home via home equity lines of credit
OREANDA-NEWS. April 18, 2016. Steadily improving home values means homeowners are increasingly comfortable tapping their home equity to establish home equity lines of credit (HELOCs) to create new cash flow.
CoreLogic Inc. data show significant increases in HELOCs offered by lenders, with more than \\$156 billion in credit being extended via HELOCs. Loan volume, while strong, doesn't measure up to the level of activity and borrower enthusiasm for HELOCs that peaked in 2006, just before the Great Recession. But industry data show HELOC lending is up 24 percent from 2014 and more than 200 percent from 2010, when home equity borrowing hit its lowest point.
KeyBank shares the following tips for homeowners seeking HELOC how-tos so they can make confident financial decisions about using their homes' value to generate cash:
- First, be assured that HELOCs are a safe and workable way to access cash to finance remodeling and free up finances for other use such as paying tuition. Yes, there were homeowners who took advantage of HELOCs and then found themselves under water when home values took a dive. Yes, HELOC critics took issue with how some homeowners used HELOCS, saying those homeowners turned their homes into ATMs.
- Know the difference and comparative advantages of a HELOC and a home equity loan:
- A home equity loan is a lump sum typically borrowed for a major one-time expense such as buying a car, consolidating bills or a one-time home renovation project. Loan payments are made in equal amounts over an established period of time.
- A HELOC is access to cash on an as-needed basis, and is best suited for ongoing needs such as home upkeep or to manage the costs of a life changing event. HELOC payments are based on the amount of money accessed from the line of credit. Talk to your tax attorney or accountant for perspective on whether HELOC payments are tax deductible.
- Take the time to talk to various lenders about their HELOC and home equity loan products so you have a good understanding of interest rates (variable or fixed) and repayment schedules.
- Know that relationships can make a difference. Working with a lender that already handles your mortgage, car payment or deposits might make a difference when it comes to fees and closing costs.
- Seeking a HELOC to finance a specific expense? Ask for a line of credit that is twice as much as you might need so your credit score doesn't take a hit. Credit scores are affected by credit utilization – literally how much credit you can access. Your credit score might be lowered if you use more than 50 percent of available credit. Avoid hitting the 50 percent utilization mark by having more in your HELOC than you need. Remember – your interest charge is based on the HELOC funds you actually use, not the HELOCs total amount.
- Get ready to borrow. Obtain your FICO score and gather paperwork and documentation such as W2 forms and pay stubs. Establish what you can easily afford to pay each month by scrutinizing your budget.
Assuming home values continue to improve, HELOCs can be an efficient way to manage money and make the most of your home's value.
This material is presented for informational purposes only and should not be construed as individual tax or financial advice. Please consult with legal, tax and/or financial advisors. KeyBank does not provide legal advice.
KeyCorp was organized more than 160 years ago and is headquartered in Cleveland, Ohio. One of the nation's largest bank-based financial services companies, Key had assets of approximately \\$95 billion.
KeyCorp provides deposit, lending, cash management and investment services to individuals and small and mid-sized businesses in 12 states under the name KeyBank National Association. Key also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets trade name. For more information, visit key.com. or follow us on Facebook or Twitter (@KeyBank). KeyBank is Member FDIC.