Your home isn’t just a place where memories are made; it’s also a valuable financial tool that can help you reach your long-term goals. With a home equity line of credit (HELOC), you can access funds for a home remodel or addition, debt consolidation, or even pay tuition. At Rollstone Bank & Trust, we help Massachusetts homeowners maximize their home’s equity. This guide explains home equity, how HELOCs work, their benefits, and how to use them to improve your life.
What Is Home Equity?
Home equity is the difference between what your home is worth and what you owe on the remainder of your mortgage. Your equity will continue to grow as you pay down your mortgage and your property value increases.
What Is a HELOC? Understanding the Benefits
A home equity line of credit, commonly referred to as a HELOC (pronounced HEE-lock), allows you to borrow against the equity in your home, giving you access to a revolving line of credit that you can use as needed.
Unlike traditional fixed loans, a HELOC offers flexibility; you only borrow what you need when needed and typically only pay interest on what you use. A HELOC provides a balance between convenience and control for homeowners who want quick access to funds without the burden of a large lump-sum loan.
Calculating Property Value in Massachusetts to Determine Home Equity
Property values in Massachusetts can vary greatly depending on location, but home prices have remained strong thanks to a competitive real estate market and desirable neighborhoods. That means that if you’ve owned a home for several years, you have more than likely built up significant equity.
To calculate your home’s equity, subtract the outstanding balance of your mortgage from your home’s current market value: Home Equity = Current Property Value – Mortgage Balance.
Before applying for a HELOC, your lender will usually request a recent appraisal or a comparative market analysis (CMA) to accurately determine your home’s value. Most lenders allow you to access 80-85% of your home’s appraised value minus your outstanding mortgage balance.
Exploring Your Financial Options: How HELOCs Work
A HELOC can give you easy access to funds, and depending on the lender you choose, they may come with various benefits and features, including interest-only payment options, waived closing costs, and possible tax advantages. (Consult a tax adviser.)
Your HELOC functions almost like a credit card, except your home secures it, so you’ll typically have a lower interest rate than credit cards and other unsecured loans. First, you’ll have a draw period during which you can “draw upon” or use the line of credit, followed by a repayment period.
During the draw period, your lender may allow you to make interest-only payments or start paying down the principal, allowing you to manage the debt in a way that suits your needs.
Variable-rate HELOCs vs. fixed-rate HELOCs
When considering a HELOC, one of the most important decisions you’ll make is how interest is applied to your borrowing. Most traditional HELOCs are variable-rate, meaning the interest rate and monthly payments can fluctuate depending on current market conditions. While this can work to your advantage when rates are low, it can also make long-term budgeting difficult.
A fixed-rate HELOC, on the other hand, offers more predictability, allowing you to lock in a stable interest rate on all or part of your outstanding balance, giving you consistent monthly payments over a set term. This option can be beneficial if you’re funding a larger project, covering educational costs, or want the peace of mind that comes with fixed payments, regardless of what’s happening in the market.
At Rollstone Bank & Trust, we’ve combined the best options into Home Equity Flex, giving you all the flexibility of a traditional HELOC and the security of a fixed-rate loan. Home Equity Flex allows you to borrow as needed, access funds on your schedule, and make interest-only payments during the draw period like a standard HELOC, with the ability to lock in a portion of your balance at a fixed rate anytime. You can maintain up to three fixed-rate portions at once, all while keeping the rest of your available credit open and flexible at a variable rate.
Improving Your Home with a HELOC
Home improvement projects are among the most common uses of a HELOC. From upgrading a bathroom and finishing a basement to replacing outdated appliances, using your home’s equity to reinvest in your property is smart. It will enhance your overall quality of life and possibly add value to your home.
Funding renovations with a HELOC may also carry potential tax advantages as the interest paid on a line of credit is tax deductible when used for qualified home improvements. Consult a tax adviser to understand how this could apply to your situation.
Maximizing Cash Flow with Equity
In today’s economy, flexibility and financial stability are more important than ever. A HELOC offers peace of mind by giving you access to funds when needed without having to reapply or take out a new loan.
For some, a HELOC is a safety net, ready to cover emergency expenses or unexpected home repairs. For others, it’s a strategic way to manage monthly cash flow, especially during seasonal income fluctuations or for large purchases. As a revolving line of credit, you can pay down the balance and borrow against it again as needed, making it a versatile asset in your financial toolkit.
Get Started with a HELOC
Rollstone Bank & Trust is committed to helping Massachusetts homeowners maximize their financial resources. Our team is here to walk you through every step of the HELOC process, from assessing your home equity to finding a line of credit that matches your budget and goals. Your home is more than just an asset; a home is where your future is built, and we want to help you make the most of it. Contact us today to learn more about our HELOC options and start unlocking the value in your home.