Fall Borrowing

Fri, 19 Sep 2014

When you need cash, home is where the equity is.  

College tuition. Home improvements. A family wedding. Every now and then, life can get expensive. And when that happens, it’s nice to be a homeowner. That’s because your home can be a convenient and economical source of cash with a home equity credit line. 

Often called a HECL or HELOC, a home equity credit line is a revolving line of credit that is secured by your home. In many ways, a HECL is like a credit card – you use what you need, as you need it, and make monthly payments to pay it back. It’s different from a home equity loan which gives you the full amount you’re borrowing up front, and gives you a certain number of months to pay it back. 
This can make a HECL a better choice to pay for projects that may not have a fixed price tag or have costs spread out over time, such as home improvements and college. It gives you quick access to funds when you need them.  And only charges interest on those you actually use. 

Related Article: How a Home Equity Credit Line Works

Cost-effective from start to finish 

Like home equity loans, you can usually get a HECL with no upfront costs. There may be a pre-payment penalty -- usually two to four years -- and possibly an annual fee. Check with your lender for specific details.
While most mortgages and home equity loans have fixed rates, most HECL rates will vary based on a margin above or below the prime rate. This usually gives you the lowest rate available at the time. 
Some banks, like Webster, may offer a “fixed-rate conversion option,” which means you can covert your HECL balance to a fixed rate. A Webster banker can give you more details.     

Draw and repay: A tale of two time periods. 

The Draw Period. This is when you can draw money from your line of credit – up to the full amount of your approved line. During this time:

  • Your minimum payment is usually just the interest owed on the money you withdrew (You can always pay more, but it’s usually not required) 
  • You won’t owe anything on the unused amount of your line
  • You can usually pay off your entire balance without penalty, as long as your line remains open for possible use in the future 

Once your principal is re-paid, those line of credit funds become available again for you to use as needed. At the end of your draw period, you may choose to apply for a new HECL and get a fresh draw period. See your banker to figure out your best options.

The Repayment Period. If there’s a balance on your credit line at the end of the draw period, 
most banks, like Webster, will give you a repayment period – usually 15-20 years. During this time:

  • You won’t be able to draw any more funds from your credit line
  • Your rate will still vary according to the prime rate
  • Your monthly payment will now include principal and interest

Related Article: How to Determine if You Should Refinance Your Mortgage

Now’s the time to borrow. 
It’s no secret that rates for all loans and credit lines are still near historic lows. So NOW is the time to see if a home equity credit line is right for you. Call 1-800-4EQUITY, or stop by your local Webster banking center to learn about HECLs and all of our other borrowing options.  

 All loans and lines are subject to credit approval.

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