A home equity line of credit (HELOC)
may be a good option if you’ve built sufficient equity in your home, and you want to pay off your mortgage right away.
When approved for a HELOC, homeowners can expect lower interest rates than what they pay on a mortgage loan. Lower interest means more savings and possibly paying off the loan sooner.
The definition of a HELOC sets it apart from other types of loans: You pay interest only on the amount you use. Often, you can secure a locked interest rate for a home equity line of credit to keep long-term costs manageable. Unlike a mortgage, a HELOC
works much like a credit card. It offers flexibility, allowing you to access the funds as needed and pay back what you use.
Equity equals the current value of the home minus the amount still owed on the mortgage. To use a HELOC to pay off a mortgage, homeowners must build enough equity to cover a portion of the amount owed on the original home loan. Typically, financial institutions
will provide a credit line equal to 80% to 85% of a home’s value.
Three potential benefits of using a HELOC to pay mortgage
- A HELOC offers flexibility, as this revolving line of credit can be accessed over time as needed.
- A borrower can have peace of mind by choosing the lender that set up the original mortgage or shopping around to find better rates and terms than the current mortgage lender offers.
- Using a HELOC to pay off your mortgage early can also save you money on mortgage insurance payments.
Three potential concerns about using a HELOC to pay off your mortgage
- Since HELOCs are secured by your property’s value, you could lose your home if you repeatedly fail to make timely payments.
- Home equity lines of credit often come with variable rates, meaning interest can fluctuate with the U.S. prime rate.
- You’re reducing the available equity in your home by securing a HELOC.
If you’ve built up equity in your home and want to use a HELOC to pay off a mortgage, you can apply online for a loan through First Merchants. Contact our professionals online, by phone at 1.800.205.3464 or at your nearest banking center to learn more.
