Should You Get A Home Equity Line Of Credit?

Let’s start off by saying that home equity lines of credit are rather effective instruments for a number of people. These individuals use their home as collateral and get access to a revolving line of credit that has a variable rate. The specific word “equity” in the larger phrase “home equity line of credit” can be defined as follows: take the amount that is still outstanding on the mortgage of your home and subtract it from the market value of your same home. The difference is the equity within your credit line. It’s not very different than having a credit card in your wallet that features a very high credit limit but a rather low interest rate.

One critical point to always consider is that a line of credit built on home equity is not a conventional loan. Home equity lines of credit are very similar to home equity loans, but there are subtle variations between them that can prove substantial in impact.

                               

This Isn’t Your Usual Home Equity Loan

A home equity line of credit isn’t like your usual home equity loan since it doesn’t stipulate a set amount of money that you borrow. Choosing between the two is really just up to you and what you want. Having said that, one benefit of a home equity line of credit over home equity loans is that the approval process is a little looser. Especially in terms of requirements that has to be met.

The primary advantage of a home equity line of credit is that you have serious influence over your cash flow. You have a recurring ability to dive into your home’s equity when you need the cash. This line of credit revolves continually, so you can borrow what you absolutely require when you actually need it instead of getting a lump sum that might be too big or just a one-time thing when you get a home equity loan.

If there are a number of home renovations you are thinking about, or just a number of large expenses or purchases coming up, then you might benefit from a home equity line of credit. Taking out such a line can prove beneficial if you need occasional infusions of cash at amounts you decide on at the time, rather than getting everything lumped up just at once.

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Terrific For Ongoing Recurring Bills

It’s a terrific method of paying for any bills that come up regularly. You can also use it to make additional rooms, a car, or even a college education a possibility.

Home equity lines of credit are very powerful tools for homeowners that choose to put them in their financial toolkit. Homeowners that qualify can use them to finance practically anything they need or desire. Paying off credit cards with high interest rates is a good idea, as is improving your home or sending a child off to college or university.

Only Pay Interest on What You Borrow

An additional benefit is that these lines of credit can be left to sit idle until you actually need to tap it. Once you get approval, you only take out money when you need it. That means that the only interest you pay is on the money that you actually borrow. That can mean savings of hundreds to thousands each year on interest alone. Home equity lines of credit are efficient because you only get hit with interest after you tap your credit line, and again only for the amount you borrow.

While home equity should not be a substitute for emergency funding or a rainy day reserve, establishing a home equity line of credit can still make your financial picture smarter overall. The risk is that if you miss enough loan payments to default, you risk losing your home.

Should You Get A Home Equity Line Of Credit?

Some homeowners find home equity lines of credit to be useful financial resources to have at their disposal. The popularity of this choice is growing among many homeowners who cringe at the thought of second mortgages or refinancing.

Preapproval is also very popular, and if you want to learn more, there are a number of sources, online and off, about getting a home equity line of credit.

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