4 Benefits of an Interest-Only HELOC
An Interest-Only Home Equity Line of Credit (HELOC) can be a helpful tool for homeowners. But you must know how to use it, what makes it beneficial, and in what situations it makes sense.
Throughout this article, we’ll cover the basics and benefits of an Interest-Only HELOC so you can determine if it’s the right option for you.
What is an Interest-Only HELOC?
Much like a regular HELOC, an Interest-Only HELOC is a home equity product that allows you to borrow money against the equity built up in your home. You can borrow this money as you need it up to your credit limit.
HELOCs consist of two phases: a draw period and a repayment period. Each phase lasts a set number of years, as determined by your lender. At Connexus, our Standard and Interest-Only HELOCs have a 15-year draw and a 15-year repayment.
During the draw period of an Interest-Only HELOC, you can borrow money from your line of credit while making monthly payments towards interest only.
During the repayment period, you can no longer borrow money and must pay back the remaining interest and principal.
What are the benefits of an Interest-Only HELOC?
Now that you know how an Interest-Only HELOC works, here are some of its benefits.
Benefit 1: Convenient Access to Cash
Standard and Interest-Only HELOCs allow you to borrow money, repay it, and borrow again as needed during your draw period.
This can be helpful if you want to complete several home projects over a few years or if you have unexpected expenses, such as medical bills or home repairs, occur during your draw period.
Both HELOC options can give you peace of mind, knowing you can borrow money when needed.
Benefit 2: Flexible Payments
An Interest-Only HELOC can be helpful for people with irregular incomes. It allows them to make smaller payments during times of reduced income and to increase their payments as their financial situation improves.
For example, this option might be helpful if someone in your household recently lost their job or is changing careers. Your household income might be affected, but you know it will bounce back in a few months.
Check out this article by Bankrate for more situations when an Interest-Only HELOC makes sense.
Benefit 3: Generous Credit Limits
HELOC credit limits tend to vary by lender. According to an article by Forbes Advisor, most lenders will allow you to borrow up to 80-90% of the equity you have in your home.
At Connexus, you must have at least 10% equity in your home, and qualified applicants may borrow up to 90% of their home’s value. Learn more about our HELOC requirements.
For those with a higher credit limit, Standard and Interest-Only HELOCs can help with debt consolidation. Instead of having multiple monthly high-interest payments, you can consolidate your debt into one payment, often with a lower interest rate.
Benefit 4: Lower Interest Rates
When you need to borrow money, a Standard or Interest-Only HELOC is one of the most affordable options. While HELOCs have a variable interest rate, meaning it can change throughout the repayment period, they often have lower interest rates than credit cards and other loans.
Take on life’s adventures with a HELOC.
One of the best things about a HELOC is that it’s versatile. Whether it’s an unexpected expense, a home renovation, debt consolidation, or something else, a HELOC can help when you need it most. And to top it off, it’s affordable.
Ready to get started? First, learn more about our Standard and Interest-Only HELOCs and decide which option is best for you. Then, use our HELOC calculator to determine how much you might qualify for and complete our online application today.