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.)
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 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
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
Use your line of credit to pay off the existing mortgage for better interest rates.
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?
Now it isn't just 'easy money'. It does have risk to it.
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.
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.
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.)
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 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
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
Use your line of credit to pay off the existing mortgage for better interest rates.
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?
Now it isn't just 'easy money'. It does have risk to it.
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.
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.
About the Author:
Doc Schmyz has invested all over the US. He built a free free website shares Real estate investing information for all over the US. Find Real estate investing information by state
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