An Interest-Only Home Equity Line of Credit (HELOC) can be an extraordinary tool for you as a homeowner. But you have to know how to use it and understand what makes it beneficial.
We’ve got you covered. Let’s start with the basics.
What is an Interest-Only Home Equity Line of Credit (HELOC)?
Much like a regular HELOC, an Interest-Only HELOC is a product that allows you to borrow money against the equity built up in your home. (What is equity and what can it be used for?)
Like credit cards, HELOCs are lines of credit that have limits. You can borrow 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 for a number of years set by your lender (at Connexus, it’s 15 years).
Draw Period: During the draw period, you can borrow money from your line of credit and make monthly payments. With an Interest-Only HELOC, monthly payments during the draw period go toward reducing the amount of interest you owe, giving you added flexibility in the long run.
Repayment Period: During the repayment period, you pay back the remaining interest and principal.
Now that you know how it works, here are the things that make Interest-Only HELOCs such a great option.
Benefit 1: Convenient Access to Cash
An Interest-Only HELOC allows you to borrow money, repay it, and borrow again as needed during your draw period.
During that time of revolving access to cash, you’ll be making the lowest possible monthly payment, because you’re only required to pay the interest until the draw period has ended.
After that, you’ll have 15 years to pay off your line of credit.
Benefit 2: Flexible Payments
For people with irregular income, it’s helpful to be able to make interest-only payments during times of low income and larger payments when your income increases.
Similarly, if you need funding now, and you need the loan payment to be as low as possible, but you’re confident that in the future you’ll be able to make a higher payment, an Interest-Only HELOC can provide the money you need without causing stress over paying it back.
Benefit 3: Generous Credit Limits
HELOCs offer high credit limits, and because the limits are so high, they’re a great option for people who want to consolidate debt.
Since HELOCs are amortized over many years, using one as a consolidation loan can greatly reduce your monthly payments. That can leave you with extra money, which means a more comfortable lifestyle or the ability to make investments that will pay off in the future.
Benefit 4: Low Interest Rates
When you need money, a HELOC (regular or interest-only) is one of the most affordable ways to borrow. All Connexus HELOCs have introductory rates that are lower than both personal loans and credit cards. See our current rates.
If you’re a homeowner, an Interest-Only HELOC could help you borrow money. It’s quick, easy, and extremely affordable.