SmartMoney Monday: What is a HELOC and is it an option for you?

Smart Money Monday: What Is a HELOC and Is It an Option for You?

HONOLULU (HawaiiNewsNow) -
Steve: It's SmartMoney Monday, and today we're wrapping up this month's topic about buying a home. Here to talk about the tools you can leverage once you buy your home is Patty Van Kuran, assistant vice president and executive loan officer, from Bank of Hawaii

Steve: So, the paperwork is signed, the moving crates are unpacked, you're now officially a homeowner. Now what?

Patty: Well first, congratulations! Home ownership takes a lot of planning and effort, so take the time to applaud all your hard work. But then at some point you may start looking at that slightly outdated bathroom and thinking it could use some new shower tiles or new fixtures.

Steve: Ah ha! Home improvement projects! I see where you're going with this.

Patty: Yes, one of the joys of home ownership is the to-do list, whether it's minor repairs or major renovations. The great news is that there are financial tools that are available to homeowners that they can use to help out with these expenses.

Steve: That's good to hear. What are these tools?

Patty: We're talking about a home equity line of credit, referred to as HELOC. It's a revolving line of credit for homeowners that provides a source of funds to use when they need it.

Steve:  And how does it work?

Patty: It's like a credit card. Borrowers are approved for a certain limit, which is based on the equity they have in their home and their credit score. Equity is how much your home is worth minus how much you owe on a mortgage.

So, if your home is $100,000 and you owe $75,000 on its mortgage, then you have $25,000 in home equity. Your lender will issue special checks or a credit card  for your HELOC that can be used to pay for what you need

Steve: So why use a HELOC as opposed to taking out a loan or using a regular credit card?

Patty: There are a few benefits to using a HELOC:

•    Interest rates are generally lower than traditional loans and credit cards.
•    There are potential tax benefits. Home equity interest that is paid could be tax deductible.
•    The amount you use usually has a longer maturity period. That means you can repay over a longer period with smaller monthly payments.

Steve: What about flexibility? Can you only use a HELOC for home related expenses?

Patty: Good question, Steve. You can use your HELOC for anything you need, whether it's home repairs, school tuition or medical bills. You just want to remember that this line of credit is connected directly to your home. Make sure you can make the necessary payments on home equity line purchases or the lender can collect the collateral, which is your home!

Steve: Spend responsibly. Very important to keep in mind when dealing with any credit. Join us next week for an all new topic for the month of October. For Patty Van Kuran, I'm Steve Uyehara. Thank you for watching SmartMoney Monday.

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