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. While you live,and sleep in your home worrying about debts or wishing you could refurnish the living room you may be sitting on the cash that will grant your wishes.
Would You Want an Equity Line of Credit?
Unlike 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 as a revolving credit (like your credit card). You do not need to pay interest on the full amount you have access to -- you only pay for what you have used. Also, like a credit card, when the debt is repaid you still have access to the credit.
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???
While you can no doubt find numerous uses for your line of credit, here are samples of the more common reasons for obtaining an equity line of credit.
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.
Second mortgage
Take the HELOC and pay off or down the second loan on you home.
Add On, Update or Go Away
Go on a vacation, re-do a room, or buy a car...all with a interest rate that is far lower then most credit cards. This fact alone makes it ideal for large cost purchases.
Ok...so whats the Down Side?
Now it isn't just 'easy money'. It does have risk to it.
In some cases you can't use a HELOC to repay certain loan types. some types of student loans, small business loans, etc. You need to review the "target debt" you wish to use it on before taking out the 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.
We all understand the freedom and relief that comes from having access to extra funds. For both those emergencies, as well as last minute purchases. However its important to understand the risks as well as benefits. - 16732
Home equity is the value of your home minus the remaining mortgage balance which is outstanding. While you live,and sleep in your home worrying about debts or wishing you could refurnish the living room you may be sitting on the cash that will grant your wishes.
Would You Want an Equity Line of Credit?
Unlike 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 as a revolving credit (like your credit card). You do not need to pay interest on the full amount you have access to -- you only pay for what you have used. Also, like a credit card, when the debt is repaid you still have access to the credit.
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???
While you can no doubt find numerous uses for your line of credit, here are samples of the more common reasons for obtaining an equity line of credit.
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.
Second mortgage
Take the HELOC and pay off or down the second loan on you home.
Add On, Update or Go Away
Go on a vacation, re-do a room, or buy a car...all with a interest rate that is far lower then most credit cards. This fact alone makes it ideal for large cost purchases.
Ok...so whats the Down Side?
Now it isn't just 'easy money'. It does have risk to it.
In some cases you can't use a HELOC to repay certain loan types. some types of student loans, small business loans, etc. You need to review the "target debt" you wish to use it on before taking out the 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.
We all understand the freedom and relief that comes from having access to extra funds. For both those emergencies, as well as last minute purchases. However its important to understand the risks as well as benefits. - 16732
About the Author:
Doc Schmyz has invested all over the US and Canada. He built a free website shares Real estate investing information for all over the US. Find Real estate investing information by state
