| Home Equity Line Of Credit: Do You Really Want One? |
| Articles - Mortgage |
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For the last few years the "home equity line of credit" has gotten a lot of attention.
For the last few years the "home equity line of credit" has gotten a lot of attention. Home equity is the value of your home minus the remaining mortgage balance which is outstanding. This equity can be used to cover cost and expenses you may have or be used on home remodeling projects you wish to do. Why Would You Want an Equity Line of Credit? With a typical loan, which deposits a set amount of money in your account and begins charging you interest and payments at a fixed rate until repaid, a line of credit acts sort of like a credit card account. You do not need to pay interest on the full amount you have access to -- only on the amount you have used. Using an equity line of credit (also known as a HELOC) gives you greater flexibility with the least cost. Not only can you access the credit only as you need it,your monthly payments will reflect only the balanced used. Some lines of credit have only the interest as the minimum payment which can be helpful when finances are tight. An equity line of credit is a nice thing to have when you don't have a large fixed amount to spend in one place, and when you repay it you want access to the credit without asking for a new loan when you have paid it back. Do I have limits on what I can use the loan for??? We can all find lots of uses for a line of credit loan...but here are some of the most common examples. Consolidate Debts Consolidate or wipe out some of your other bills/debts completely. Not only does this make your monthly breathing room a bit wider...but in the long run it will help your credit score and interest rates that are offered to you on other loans as well. Take care of your "second" on your home. Take the HELOC and pay off or down the second loan on you home. Add On, Update or Go Away You may use your line of credit for renovating, buying new furniture or a car, or taking a vacation with less interest payments than using a credit card or store card making it a wise choice for large purchases. The Down Side of a Line of Credit. Before succumbing to what seems like 'easy money' it is important to evaluate the additional risk. Some debts -- like student loans- have features that you may not be entitled to if you switch them to an equity line of credit. Other items like cars and vacations may seem like a good idea to buy with your home equity line of credit, but with the ability to pay only the interest you may find the motivation to pay off the debt is lacking and end up owing for items that have lost their value or were consumable. Plan to pay off the debt quickly for the most advantage. A Second mortgage (or refinancing) may or may not be a good idea depending on interest rates and your repayment terms. While lines of credit take advantage of current low interest rates you may find that your regular loans protect you better from fluctuating rates if you will not be paying the loan down in the next few years. Using your finances wisely can give you great relief and freedom. Before taking on any financial obligations it is important to understand the risks as well as the benefits. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Doc Schmyz has invested all over the US. His free website shares Real estate investing information for all over the US. Find real estate information by state |