Bills, bathrooms and banking

WHAT IS A HELOC?

Essentially, a HELOC is a line of credit secured by your home that can be used for any kind of personal expense, Fowler says.

“The largest asset for many people is their home, so being able to tap into that equity can help them cover major purchases,” he says.

The details of these loans vary from bank to bank. But typically, they have little-to-no up-front costs, applications or closing fees, and relatively low interest rates, Patterson says.

BY ROBERT EVATT

Many people think banks only give out big loans for big things — think new houses or new cars.

But if you’re a homeowner, you can tap into your equity to secure a much smaller loan that can help you overcome an unexpected challenge or give your home a makeover. That’s a home equity line of credit — HELOC, for short.

We spoke to Stephen Patterson, senior vice president and consumer lending manager at First Oklahoma Bank, and Terry Fowler, wealth management lending officer for Bank of America, to examine what HELOCs are and how they work.

“It’s like a credit card, but the interest rates are a lot less,” he adds.

WHO IS A GOOD CANDIDATE FOR THIS LOAN?

“As long as you have equity in your home, you’re a good candidate,” Patterson says.

Typically HELOC applicants have been in their home at least five to 10 years — though some build enough equity to access a HELOC sooner than five years — and have a decent amount of equity to convert into cash.

“Personally, I like to recommend borrowers review their credit reports before applying to make sure credit utilization is low,” Fowler says.

HOW IS A HELOC SECURED?

Those seeking a loan will need to fill out an application at the lending institution. The process can be detailed, and usually takes two to three weeks, Fowler says. The lender will typically discuss the borrower’s financial situation and goals, and examine monthly income and debts.

“It’s very similar to the process of obtaining a first mortgage,” he says.

HOW SOON IS THE HOMEOWNER EXPECTED TO PAY IT BACK?

Monthly payments begin shortly after the borrower draws money. The borrower doesn’t have to take all the intended funds at once — HELOCs have what’s known as a draw period, during which the borrower can withdraw any or all of the funds they qualify for, whenever they’d like. Draw periods typically range five to 10 years, and some banks have no draw period.

After the draw period ends, the borrower can no longer take out funds and the repayment period begins. This stage can last 10-20 years, though it also is possible for the borrower to repay during the draw period and completely skip the repayment period.

WHAT ARE SOME EXAMPLES PEOPLE USE THE MONEY FOR?

Fowler says he most often sees people use HELOC funds for home improvements. Other borrowers use a HELOC to help them pay unexpected tax bills or to consolidate debt.

And some who have HELOCs never draw money from them at all. Simply knowing they have easy access to additional funds can grant them peace of mind, Patterson says.

“It’s a security blanket if you have an older home, because things like the hot water heater can go out,” he says. TP