Home Equity Loan!
If you own your home you have a financial resource available to you that can help you with your financial needs or concerns. What is a home equity loan?
Equity is the value of your house less the remaining mortgage balance which is owed. 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 could allow you to take care of your dreams.
Why Would You Want an Equity Line of Credit?
Unlike a the average 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, when the debt is repaid you still have access to the credit.
Using an equity line of credit (also known as a Home Equity Line of Credit or HELOC) gives you greater advantages with the least cost. Not only can you access the credit only as you need it, but your monthly payments will only be charged on the balanced used. The less used the lower your payment. Some lines of credit interest only options as the minimum payment, which can be helpful when finances are tight.
An equity line of credit is fantastic when you don't have a large fixed amount to spend in one place, that could take many years to repay, or you may want need the credit without asking for a new loan after you have paid it back.
What Can I Use the Equity Line of Credit For?
While you can no doubt find many uses for your line of credit, here are ideas for obtaining an equity line of credit.
Consolidate Debts
Using your equity line of credit to consolidate other debts can not only eliminate the stress of multiple bills but can also give you a more favorable interest rate or tax benefit.
Second Mortgage
Use your line of credit to pay off the existing mortgage for better interest rates.
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.
When Should You NOT Use a Line of Credit?
Before taking advantage of what seems like 'easy money' it is important to think about the additional risk.
Some debts , as in studnet loans, have features that you may do not be carry over 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.
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 of a home equity loan.