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Welcome to our website! We are thrilled to provide you with valuable insights about financial options that can help you maximize the equity in your home. One common question homeowners often face is whether they should consider a Home Equity Line of Credit (HELOC) or refinancing their low-interest rate first mortgage. Each choice has its merits, but in certain scenarios, a HELOC may offer more advantages. Let's delve into the details.
A Home Equity Line of Credit, or HELOC, is a type of loan that allows you to borrow against the equity in your home. It operates similarly to a credit card, where you have a set credit limit that you can draw from as needed. You only pay interest on the amount you borrow, and as you pay down the balance, your available credit increases.
If you already have a low-interest rate on your first mortgage, refinancing could potentially increase your overall interest rate, especially if current market rates are higher than what you are presently paying. In contrast, with a HELOC, you retain your existing mortgage and its advantageous terms.
Refinancing a mortgage involves many of the same costs as the original mortgage, such as appraisal fees, origination fees, and closing costs. These can add up quickly. A HELOC has much lower upfront costs, saving you money in the short term. There is no full appraisal or title insurance on our HELOCs.
A Home Equity Line of Credit offers you the flexibility that refinancing doesn't. You can borrow as much or as little as you need up to your credit limit, and you only pay interest on the amount you've drawn. This is particularly useful if you aren't sure exactly how much money you'll need, as you can adjust your borrowing based on your ongoing needs.
The interest on money borrowed through a HELOC is typically tax-deductible if the funds are used for home improvements, while interest from a refinanced mortgage is not. This can provide significant savings come tax season.
The process to establish a Home Equity Line of Credit is generally quicker than refinancing your mortgage. If you need access to funds quickly, a HELOC could be a more suitable option. No appraisal (only AVM), no title insurance and an E-Notary does the signing. Most funding happens in 5 days.
According to the Federal Reserve, the average credit card balance in the United States has increased by 13.5% over the past 5 years. In 2018, the average credit card balance was $5,310. In 2023, the average credit card balance is $5,986.
This increase in credit card debt can be attributed to a number of factors, including:
The increase in credit card debt can have a number of negative consequences, including:
If you are struggling to pay off your credit card debt, a Home Equity Line of Credit may be the perfect choice. The HELOC would allow you to consolidate all your debt into one payment with a much lower interest rate. Our HELOC rates start at 5.49% plus an additional .25% discount for automatic payments. Much lower than the average credit card interest rate of 20.92% and auto loan at 5.82%.
Use our Mortgage Calculator to estimate your new consolidated HELOC payment. Refer to our HELOC Frequently Asked Questions page for more specific loan guidelines.
As of May 2023, the average credit card interest rate in the United States is 20.92%. This means that if you carry a balance of $1,000 on your credit card, you will pay $209.20 in interest each year. The interest rate you pay on your credit card will vary depending on your credit score. The rate you pay also depends on the type of credit card you have, and the terms of your credit card agreement. If you have good credit, you may be able to get a credit card with a lower interest rate. However, even if you have good credit, it is important to pay off your credit card balance in full each month to avoid paying interest.
While both refinancing and a HELOC have their places in financial planning, a HELOC offers several distinct advantages, particularly if you already have a low-interest rate on your first mortgage. It's important to consider your individual situation and goals when choosing between these options.
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