The new financial product in the UK has been in use in the US and Canada for years now. Here’s how it could benefit you.
A HELOC is a new type of financial product for those of us in the UK market – but not for our friends across the pond. The benefits of this wonderful type of loaning and borrowing money are plenty, both for the lender and for the borrower. Let’s take a deeper delve into the world of the HELOC for the benefit of our British audience. What sort of things should you expect from this year’s hottest new financial package and what can you spend it on?
What is the HELOC, Anyway?
A HELOC stands for a Home Equity Line of Credit. This innovative way of borrowing money works only for homeowners, and for those in the middle of repaying their mortgage. The idea is that you are given a line of credit equal to 80% of your home’s value. Once you have this line of credit open, you pay a one time product fee and interest only on what you borrow.
Sound attractive? It should. If you have been thinking about releasing the equity in your home to help you pay for things like a new car, a new home extension, or a holiday somewhere nice, then this is the modern method of doing so.
What You Need to Know About HELOC in the UK
The Home Equity Line of Credit works by letting you borrow a set sum. You are given the top end figure of how much you can borrow, though you do not need to borrow that whole amount. You can typically track what you use with an app, or at least you can with the top provider, Selina Advance.
The total amount you can borrow using a HELOC is 80% of the total value of your home, less the amount you still have outstanding on your mortgage. So, if your home was worth £100,000, your top figure would be £80,000. However, if you had £20,000 outstanding on the balance of your mortgage, you would only be able to borrow £60,000.
As you can imagine, this is a hefty sum for those with a big property and those that have nearly finished paying for their homes. The equity is borrowed against that home, allowing them to spend as much as they need. Remember, if you don’t keep up your repayments, your home could be foreclosed upon.
Am I Eligible for a HELOC?
If you own your own home, and if you have repaid a reasonable sum on your mortgage, then you should be eligible for a HELOC of your own. Reasons that people take these out include paying for private school tuition or for rehab clinic stays. You may want the money for a new build, a new car, or a home extension. You can work out how much you could potentially borrow over on NerdWallet.
Whatever your reasons for needing access to large amounts of cash, fast, a HELOC provides a swift, expedient option for the modern homeowner. Consider it carefully before you next apply for a loan. A HELOC might serve you better and could give you more affordable repayment rates. Check it out before you commit to invest.