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What is a Home Equity Line of Credit?
A HELOC, also called a homeowner line of credit, is a form of revolving credit that allows you to borrow money using the equity and value you’ve built through owning a home and paying off your mortgage. Like a credit card where you are given a maximum amount you can spend from, a HELOC lets you withdraw an amount in relation to how much you need at the time.
A HELOC often has a lower interest rate than traditional loans and is typically a more affordable way to borrow funds. At Mainstreet, a HELOC is secured by your principal residence and interest is only charged on the amount used. You can apply for a HELOC at any time that works for your financial needs. When the funds become available, you can use the funds as needed.
When to use a HELOC?
A HELOC is a great tool to have in your financial toolbox. It can be used in a variety of ways to help you reach your goals. It can help consolidate higher-interest debt like credit card debt, personal loans, and overdrafts into one lower-interest payment, saving you money and simplifying repayment. A HELOC can also be used to finance home renovations or repairs. This is a useful tool for not only increasing property value but also making your home more enjoyable for you right now. It can also be used for larger purchases such as appliances, education, vehicles and more.
How much can I borrow?
There are a few factors that go into how much you can borrow. The amount you can borrow is dependent on the equity you have in your home and cannot exceed 70% of the total value of your home. As your home equity increases, so does your borrowing capacity through a HELOC. Secondly, our advisors will determine your debt-to-income (DTI) ratio; this is your gross monthly income that goes towards paying your monthly debt obligations. Debt-to-income ratio is used to understand what amount of your income is going to existing payments to ensure you are not over burdening yourself. A low DTI ratio can make you eligible for a higher loan, a lower interest rate, or a combination of both.
Book an appointment with your Mainstreet Advisor to review your documents and understand how much you can borrow with a HELOC.
How do I pay off my HELOC?
Regular monthly interest payments on the amount used are required for a HELOC. If you wish, you can also pay the principal of your HELOC in combination with the monthly interest payment. To put a payment towards the principal of your HELOC you can contact one of our branches, make a payment with online banking or set up automatic payments from your Mainstreet Account. Once you pay the principal, that portion of the balance becomes available again for future use. Once the entire balance is paid off, no more monthly payments are required. Your HELOC remains open with those funds available for whenever you might need it next.
What makes a home equity line of credit different from a traditional line of credit?
Although similar, because a HELOC is secured by your home it makes it less risky for the lender and in return the lender offers lower interest rates. For the same reason, you can often borrow a larger amount, dependent on the equity that is available in your home. View our current HELOC rates.
If you still have questions, call or book an appointment to understand how a Mainstreet Home Equity Line of Credit could help you achieve your home improvement or life goals!