Home equity line of credit: Do you really want one?
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.
Why Would You Want an Equity Line of Credit?
With a normal 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. (And in some cases you then have access to the account again.)
Using an equity line of credit (also known as a Home Equity Line of Credit or HELOC) gives you greater flexibility with the least cost. Not only can you access the credit only as you need it, but your monthly payments will reflect only the balanced used. The less used the lower your payment.
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.
What Can I Use the Equity Line of Credit 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
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
Use your line of credit to pay off the existing mortgage for better interest rates.
Add too, remodel, or travel.
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 types of debt wont allow you to use a HELOC on them. Some student loans...or small business loans.
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.
Now refinancing 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. - 23162
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.
Why Would You Want an Equity Line of Credit?
With a normal 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. (And in some cases you then have access to the account again.)
Using an equity line of credit (also known as a Home Equity Line of Credit or HELOC) gives you greater flexibility with the least cost. Not only can you access the credit only as you need it, but your monthly payments will reflect only the balanced used. The less used the lower your payment.
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.
What Can I Use the Equity Line of Credit 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
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
Use your line of credit to pay off the existing mortgage for better interest rates.
Add too, remodel, or travel.
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 types of debt wont allow you to use a HELOC on them. Some student loans...or small business loans.
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.
Now refinancing 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. - 23162
About the Author:
Doc Schmyz has invested all over the US. He built a free website shares Real estate investing information for all over the US. Find Real estate investing information by state
posted by X - Men @ 2:31 AM
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