Benchmark’s Ultimate HELOC features a low introductory rate for the first six months. This not only provides borrowers with a low-interest rate and an affordable way to borrow, but also two possible payment options to fit individual needs and budgets. The Ultimate HELOC is an ideal, low-interest option for many borrowing needs, from educational, medical, and emergency expenses to major life events and home improvement projects.
What is a HELOC?
Think of your home’s equity as a savings account that grows over time. It’s the difference between what your home is currently worth and what you still owe on your mortgage. As you pay down your mortgage and your property value increases, this “savings account” grows.
A Home Equity Line of Credit is essentially a revolving credit line that uses this equity as collateral. Unlike a traditional loan, where you receive a lump sum all at once, a HELOC works more like a credit card. You’re approved for a maximum credit limit, and during a set period known as a draw period, you can borrow money as you need it, up to that limit. You only pay interest on the amount you borrow. This flexibility is one of the most significant advantages of a HELOC and a core feature of Benchmark’s Ultimate HELOC.
Interest-Only HELOC
Benchmark’s Interest Only Ultimate HELOC features a 5-year draw period, which then reverts to a 15-year principal and interest repayment term. It’s a revolving credit option allows borrowers to pay only the interest due monthly, with a minimum monthly payment of $50. Once the total principal is drawn, a borrower can make principal payments in addition to the interest payments, if they wish, and continue to draw on the available principal during the 5-year draw period. If they prefer the interest-only payments, they will stop drawing once they’ve reached their principal limit. When the 5-year draw period ends, a 15-year principal and interest repayment period begins.
Principal & Interest HELOC
Benchmark’s Principal & Interest Ultimate HELOC offers a 10-year draw period followed by a 15-year repayment term. Principal and interest payments are required to be made each month based on the total amount drawn. As you pay down the principal amount, you may continue to borrow up to the loan limit throughout your 10-year draw period. Your monthly payment will change during that period each time you advance or borrow. Once the draw period ends, a 15-year repayment period will begin. During this, you will have one pre-set payment amount each month.
The Ultimate HELOC Advantage
One of the most popular features of Benchmark’s Ultimate HELOC is the low introductory rate. We understand that starting a new project or consolidating debt can be financially daunting. Our special introductory rate helps you get started with a lower financial burden, giving you breathing room as you put your plan into action.
The real power of our Ultimate HELOC lies in the flexible repayment options we mentioned earlier. Let’s look at this through some real-life scenarios to understand the pros and cons of each choice.
Scenario 1: The “Interest-Only” Approach
- Who it’s for: Someone who needs access to a large sum of money but wants to keep their monthly expenses as low as possible during the draw period. This could be a homeowner with a fluctuating income, someone who plans to sell their home in the near future, or a person using the HELOC for a series of ongoing projects over several years.
- Pros: Lower monthly payments, which frees up cash flow for other expenses. It provides maximum flexibility, especially if you plan to pay off the principal in a lump sum later.
- Cons: The principal balance does not decrease during the draw period. This means when the repayment period begins, your monthly payments will jump significantly as you’ll be paying both principal and interest. It’s crucial to be prepared for this change.
Scenario 2: The “Principal and Interest” Approach
- Who it’s for: A homeowner who wants to pay down their debt from day one. This is an excellent option for someone who has a steady income and wants to minimize the amount of interest they pay over the life of the loan.
- Pros: You begin paying down your debt immediately, which helps you save on total interest costs. The transition from the draw period to the repayment period is less of a shock because you’re already used to making principal and interest payments.
- Cons: Higher monthly payments during the draw period.
The Best Uses for a HELOC
A HELOC is a versatile financial tool, but not a one-size-fits-all solution. Here are some of the most common and practical uses for a HELOC, along with some essential considerations.
HELOC for Debt Consolidation
High-interest credit card debt can bury you in a mountain of bills that never gets smaller. By consolidating this debt into a single HELOC payment, you can often secure a much lower interest rate. This may help simplify your finances and potentially saving you thousands of dollars in interest over time.
- Pro: Lower interest rates can save you a significant amount of money.
- Con: If you don’t address the spending habits that led to the original debt, you could end up with a HELOC and a renewed credit card balance, putting you in a worse financial position.
- Outcome: A homeowner successfully consolidates their debt, pays it off faster, and learns to manage their finances more effectively.
HELOC for Home Improvement Projects
Using a HELOC for home renovations may help to increase your home’s value. You can use the funds to update a kitchen, add a new room, or finally build that deck you’ve been dreaming of. The draw period allows you to pay for materials and labor as the project progresses, rather than taking out a large, single-sum loan.
- Pro: It’s a cost-effective way to finance improvements that can add value to your home.
- Con: You may be tempted to overspend on renovations. It’s crucial to stick to a budget.
- Outcome: A family transforms their home into their dream space, and the added value to their property justifies the investment.
HELOC for Educational Expenses
Whether it’s for your child’s college tuition or your professional development, a HELOC can be a valuable tool. The interest on a HELOC used for qualified educational expenses can sometimes be tax-deductible (consult a tax professional for details), making it a potentially more attractive option than some student loans.
- Pro: Lower interest rates and potential tax benefits.
- Con: Your home is the collateral. Failure to repay could put your home at risk.
- Outcome: A parent can help their child cover a significant portion of their college education with a low-rate financial tool.
HELOC for Unexpected Emergencies or Large Purchases
Life happens, and sometimes an unexpected expense pops up. A HELOC can act as a financial safety net, providing quick access to funds for things like medical bills, a new car, or appliance replacement.
- Pro: Provides a readily available source of funds for emergencies.
- Con: It’s easy to use a HELOC for non-essential purchases. It’s essential to be disciplined and only use it for true emergencies or financially sound investments.
- Outcome: A homeowner handles an unexpected medical bill without depleting their savings, using their HELOC to cover the expense while their cash remains in reserve.
Which HELOC options is better for you?
To determine which HELOC is better for you, you should begin by evaluating your budget and determining how much you can afford to put toward loan repayment each month. If you have the extra monthly funds available in your budget to make larger payments now, then choosing the principal and interest option upfront is best for you. Unless you continue to max out your principal balance, this option will also help you reduce the total amount owed on the principal by the time the repayment period begins. This, in turn, will leave you with lower monthly payments during the 15-year repayment period
If you find yourself with little left in your monthly budget now but expect to be in better financial shape in a few years, then the interest-only payment may be the best solution for you. For example, you may currently be using most of your excess funds to put your children through college, but you know that will only last a few more years. During the draw period, if you only make the minimum payment or the interest-only payment, your monthly payment will remain low. Once that draw period ends and the repayment period begins, your required payments will include both principal and interest. Your loan balance will be amortized over the 15-year repayment period, and a new monthly amount will be determined. It’s important to note that this new payment amount may be significantly higher than those interest-only payments you’ve been making. It’s best to be prepared for that. If you choose the interest-only option and your financial situation changes during the draw period, you can always make extra principal payments to help reduce your balance. If you don’t continue to draw on the amount you’ve paid, it will help you reduce the dollar amount of your monthly payments during the repayment period.
Visit Benchmark online for complete details, full disclaimers, or to apply for an Ultimate HELOC.
The Importance of Paying Off Your HELOC
No matter how you use your HELOC, it’s a line of credit that must be repaid. Because your home is the collateral, responsible management is paramount. While a HELOC offers incredible flexibility, it’s not a blank check. Paying off your HELOC is a commitment that requires careful planning. Even during the draw period, making payments that include some principal is a wise strategy. It reduces your overall debt. If you’ve chosen the interest-only payment option, have a strategy for paying down the principal before your repayment period begins.
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Read our blog, “Credit in Crisis: How Your Credit Card Can be a Financial Cushion.”
APR = Annual Percentage Rate. Rates are for qualified borrowers and are subject to change without notice. Introductory rate is Prime (at time of closing) minus .25% for the first 6 months. At the end of the introductory term, the rate reverts to rate according to credit score at time of application: as low as Wall Street Journal Prime Rate for 80% LTV** and Wall Street Journal Prime Rate +.25% for 81-90% LTV**. Floor rate is 4.99% APR. $100 application fee for loans under $25,000. Early termination fee of $250 if HELOC is paid off & closed in the first 12 months.