Home equity line of credit: Do you really want one?
We all know by now that home owners have a hidden savings account...its called HOME EQUITY.
Equity is the value of your home minus the remaining mortgage balance which is outstanding. While you live, eat 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.
Why 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.
When using an equity line of credit (also known as a HELOC) it 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. In some case you even have an option of paying just the intrest on the amounts used for a specific span of time.
A HELOC is a great his if you don't want to spend a large amount in one place..as well as if you want access to that credit agian, once it has been repaid, without asking for another loan.
What can the HELOC be used on??
So you have the loan...not what can you use it on. Here are some examples.
Consolidate Debts
Use the home equity line to reduce or consolidate your other debt. Not only will this help your credit score...but it can help reduce your interest payments as well.
Second mortgage
Take the HELOC and pay off or down the second loan on you home.
Add too, remodel, or travel.
Cover the cost of an addition, redecorate, or go on a trip...all at a interest rate lower then most credit cards.
When Should You NOT Use 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 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.
Equity is the value of your home minus the remaining mortgage balance which is outstanding. While you live, eat 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.
Why 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.
When using an equity line of credit (also known as a HELOC) it 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. In some case you even have an option of paying just the intrest on the amounts used for a specific span of time.
A HELOC is a great his if you don't want to spend a large amount in one place..as well as if you want access to that credit agian, once it has been repaid, without asking for another loan.
What can the HELOC be used on??
So you have the loan...not what can you use it on. Here are some examples.
Consolidate Debts
Use the home equity line to reduce or consolidate your other debt. Not only will this help your credit score...but it can help reduce your interest payments as well.
Second mortgage
Take the HELOC and pay off or down the second loan on you home.
Add too, remodel, or travel.
Cover the cost of an addition, redecorate, or go on a trip...all at a interest rate lower then most credit cards.
When Should You NOT Use 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 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.
About the Author:
Doc Schmyz has invested all over the US and Canada. He built a free free website shares Real estate investing information for all over the US. Find Real estate investing information by state
posted by Debt Consolidation Loan at
4:44 AM
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