Simply put, your equity is the amount your house is worth minus what you currently owe your lender.
How Can You Use Your Home Equity?
Once you have a good chunk of equity built up, you can let it sit and continue to grow, or you can utilize it if you have a need for a large sum of money, like for an expensive home renovation project or paying off student loans.
With HELOCs and home equity loans, you’ll likely be able to get a lower interest rate than you would with an unsecured personal loan. Depending on how much equity you have in your home, you may be able to borrow significantly more money than you could with a personal loan.
Keep in mind that your home is used as collateral for this type of loan, so if you’re unable to pay off the loans, you may lose your home as a consequence.
An important reminder: Tapping into your home’s equity can be a helpful source of cash for homeowners, but it’s something that should be approached with caution and consideration for how it could affect your financial situation.
Rocket Mortgage® does not offer HELOCs. However, we do offer home equity loans and cash-out refinances, which can each be a good option for those looking to use their home’s equity to their advantage and get the cash they need.
Can you pay off a HELOC early?
Yes, you can pay off a HELOC early. There are no associated prepayment penalties with these loans.
The best time to pay off the principal of your loan is during the draw period. You are only required to pay the interest during this time, but paying extra toward your principal as well during this period can help you avoid paying more during the repayment period.
How long does the closing process take for a HELOC?
The time to closing for a HELOC line is typically less than the closing process on a traditional mortgage. In most cases, you should expect to close within 45 days of submitting your application for a HELOC loan.
What’s the difference between a HELOC and a home improvement loan?
The biggest difference between a HELOC and a home improvement loan is that a HELOC borrows against the existing equity in your home, while the latter does not. Because of this, home improvement loans have a lower limit that you can borrow. These loans can also carry higher interest rates than HELOCs.
The money from HELOCs also doesn’t have to be used for home improvement. It can be used in other ways, from debt consolidation to making major purchases.