Are you looking to free up some cash? If so, you have probably thought about getting a second mortgage in the form of a loan or home equity line of credit (HELOC). But did you know it is possible to access your funds instantly using a credit card? This article explains the concept of a HELOC Card, how it’s different from a traditional HELOC, as well as the benefits and disadvantages.
What is a HELOC?
Let’s first explore what a HELOC is. With this type of loan you borrow funds against the equity you’ve built in your home: the value minus the outstanding balance on the primary mortgage. You can use the funds whenever you need cash, and you do not pay interest on unused funds. Because your house is used as collateral in exchange for funds, HELOCs typically come with competitive interest rates versus other types of loans. However, HELOC interest rates are generally variable, meaning they move up or down based on a benchmark rate, like the federal funds rate. For that reason, it’s important to consider the maximum rate for your HELOC when deciding whether or not to open one.
There are two phases of a HELOC: The draw period, which typically lasts five to 10 years, and the repayment period, which usually lasts 10 to 20 years. During the draw period, you can use the line of credit much like an ordinary credit card: borrow cash, repay debt, and borrow more cash. You’re only required to pay for what you spend, plus interest. During the repayment phase, borrowing stops and the focus shifts to paying down debt in the form of monthly principal and interest payments.
What can a HELOC be used for?
HELOCs are oftentimes used to pay for home improvements and remodeling, which can help increase the value of the home. In addition, the interest on a HELOC may be tax-deductible if used to purchase, build or make significant improvements to a home.
However, there are risks to consider. Because the interest rate is variable, an increase could make it more difficult to keep up with monthly payments and, consequently, increase the risk of foreclosure.
What is a HELOC Card?
Now that you understand what a HELOC is, let's talk about HELOC Cards. A HELOC Card allows you to access funds immediately to pay for items and services when you need them. This card acts just like a credit card and can be used anywhere credit cards are accepted, but typically has a much lower interest rate because it is secured by your home equity. HELOC cards can also be used to transfer balances from other credit cards and personal loans.
Benefits of HELOC Cards
There are several benefits to a HELOC Card. You can use it anytime, anywhere, just like any other credit card, and get instant access to your line of credit. The interest rate on your card is usually lower than other credit cards because it uses your home as collateral. If you use your HELOC Card to pay for home improvements, the interest on your HELOC Card may be tax-deductible, and you never pay interest on unused funds.
Compared with a regular HELOC, a HELOC Card may have significantly lower fees, and you may be avoiding the high credit minimums that ordinary HELOCs require. It can also be much faster to receive a HELOC Card than to get a traditional HELOC.
Key takeaways
- A HELOC is a line of credit backed by your home equity. This type of loan is typically suitable for purchases that help build wealth, such as home improvements or remodelings, but can also be used for other purposes, such as paying off high-interest credit card debt or personal loans.
- HELOCs commonly have low interest rates, though they’re variable and move up or down based on a benchmark rate.
- A HELOC Card allows you to access your funds immediately when you need them and works just like any other credit card. It may be faster to acquire than a traditional HELOC and may also incur significantly lower fees.
Are you looking for a HELOC Card? Aven is a credit card in the front, home equity in the back. Aven is the world's first home equity backed credit card and combines the low interest rates of a home equity line of credit with the flexibility of a credit card. Find out more!
