If you are considering a HELOC, keep reading! Traditionally, HELOCs have been a great option for homeowners looking to renovate or consolidate debt. They’re flexible, revolving, and can result in a tax deduction. But now there are new rules that may make borrowing against your home’s equity more complicated. 

Originally you could apply for a home equity line of credit “just because” but not tap into it immediately. Consider it a second mortgage for peace of mind money to be used in case of emergencies. Now other lenders are offering HELOCs in addition to banks and credit unions so sitting on the money you borrow is no longer an option. 

Nonbank lenders offer a very fast approval time – a day or two compared to the usual two to six weeks at a bank. Yet this positive come with a big negative – hefty minimum borrower draw requirements. These lenders are investors which means they want to see a return sooner than later. They won’t see a return on their investment until you, the borrower, tap into the money. That’s when you start paying interest and that’s where they make their money. And you can’t establish a 6-figure HELOC and take a measly $10,000 off the bat. That just won’t do. 

Today, if you were to borrow $100,000 against your home’s equity, your lender may require you to withdraw as much as $80,000 immediately. The interest payment would vary depending on the APR but could be as much as $480 per month. After the draw period ends, you would then need to begin repaying the line of credit while continuing to pay interest. 

Even with the new requirements, a home equity line of credit is an option. You could also apply for a personal loan, do a cash-out refi, or get a reverse mortgage. And remember, whenever you are faced with challenging financial situations, we’re here for you. Contact Alloy Wealth at 800-689-3935 to speak with one of our team members.