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Understanding your mortgage options

Why Do A Home Equity Line Of Credit?

Need money for education costs? Need to buy a car? Want to put an in-law suite onto your home? Whatever the reason, you need a large sum of money in a short time frame, right? A home equity line of credit may be the way for you to go. A home equity line of credit is like a credit card that uses the value in your house. This option, for access to cash, is appealing to many homebuyers. Let’s say your home is worth $200,000 and the total amount left on your mortgage is $120,000, you have the potential to borrow $80,000 in a home equity line of credit. But, most banks will only give you a portion of that potential equity about. That portion is usually around 80%. Also, home equity lines of credit frequently allow the borrower more flexibility in the timeline of the repayment.

Many people ask what is the difference between a home equity line of credit and credit cards? Home equity lines of credit offer much, much, much lower interest rates. And, interest is only accrued on what you borrow. So, you can take out the line of credit and not use it until you need to whereas many credit cards charge you fees for the card. Some credit cards even charge you fees for not using them. But, home equity lines of credit can have changing interest rates.

Many people also ask what the differences are between home equity loans and home equity lines of credit? Home equity loans are what many people call a second mortgage. The loan term for the home equity loan is fixed. For, the home equity line of credit, you do not have to take out the entire sum you are approved for. You can use it bit by bit like you would use a credit card.
In closing, you should also look into the costs associated with taking out a home equity line of credit. There can be application fees, appraisal fees, closing costs and sometimes points. All of these things should be discussed with you mortgage company before you take out the line of credit. And, also discuss the pitfalls. The banks are usually more than willing to discuss all of the terms of the line of credit. Ask lots of questions and do lots of research!

Top 4 Reasons To Get A Home Equity Line Of Credit

A home equity line of credit is like a credit card that uses your house as collateral. Home equity lines of credit have variable rates that are based upon the prime rate. That basically means that the interest rate on home equity lines of credit changes as time goes on. So many people are what should you not use the money you can acquire from a home equity line of credit? The answer is basically do not use a home equity line of credit on anything that does not grow or build your assets. Since you are using you house as the collateral (ie. base for the loan) you want to make you are acquire things with that money that will increase your assets. So, you most likely do not want to use your home equity line of credit on things like clothes, swimming pools, furniture, televisions, groceries and household bills, to name a few things.

So, what do you want to use a home equity line of credit for? As previously stated, you want to use it on things that grow your assets.

(1) Remodel

Many home remodeling jobs increase the value of your home. Thus, remodeling grows your assets—the value of your home.

(2) Buy a car

A car is an asset. It has value. And, especially if your home equity line of credit rate is lower than the interest rate for a car loan then this may be a good use of your home equity line of credit.

(3) Education

Education is an asset that grows your earning potential. Once you acquire it no one can take it away from you—a permanent asset, if you will.

(4) Credit card debt

Most credit cards have high interest rates. By paying down that debt with a lower interest rate mechanism like a home equity line of credit will help you to eliminate debt faster.
But, as a word of caution, understand with home equity lines of credit since you are using your home as collateral you are putting your home at risk if you miss payments or cannot make your payments any longer. Remember to discuss all the terms of your line of credit with your mortgage company thoroughly.