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Home Equity Loans and Equity Lines of Credit?
Many of us today are turning to equity lines of credit or equity loans to help meet our family’s financial needs! Over the last few years here in the U.S. property values have risen dramatically! In some area’s they have actually gone through the roof! At the same time living costs have also risen, without the same raise in our salaries? So many of us are looking towards home equity lines of credit type loans to help us through these tuff and difficult times.
We first need to educate ourselves about home equity loans? Let’s start with the extra value that your home currently has? Its called equity: Equity is the value of your home minus the remaining mortgage balance that is outstanding. 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 will grant you your wishes.
Is a Home Equity Loan/Line of Credit right for you?
Unlike a typical 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, like a credit card, 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 flexibility with the least cost. Not only can you access the credit only as you need it, but you’re monthly payments will reflect only the balanced used. The less used the lower your payment. Some lines of credit have only the interest as the minimum payment, which can be helpful, when finances are tight.
An equity line of credit is great when you don't have a large fixed amount to spend in one place that will take many years to repay and you want access to the credit without asking for a new loan when you have paid it back.
Can I Use My Home Equity Loan/Line Of Credit, Whatever Reason I Want?
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.
Using your home equity loans 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. For example: monthly credit cards bills, especially the cards with high interest payments! You might even think about paying off your vehicle, but of course only if your interest on your vehicle is higher then the one on your home equity loan?
Use your line of credit to pay off the existing mortgage for better interest rates. Pay-off the high interest rate loan you currently have on your home or rental property? This could be a tax write-off if you use it to pay-off your 2nd loan on your rental property? First discuss this with your accountant to be sure?
Upgrades to your home?
Maybe you would like to add a 2nd or 3rd bedroom or bathroom to your home? Maybe even a 2nd story? Enlarge the garage? These would all be good uses of a home equity loan! Which would bring additional valve to your home!
When Should You NOT Use a Home Equity Loan/Line of Credit?
Before succumbing to what seems like 'easy money' it is important to evaluate the additional risk.
Some debts -- like student loans- have features that you may not be entitled to if you switch them to an equity line of credit.
Items like cars and vacations may seem like a good idea to buy with your home equity line of credit, but they’re not! Anything where you are paying a higher interest would not be a good choice!
Please don’t go to the casinos with this money! It’s not worth it…
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.
Home equity loans come in adjustable or fix rate. Always ask your lender the terms of each loan, and the cost of each loan? Knowing this ahead of time will save you many years of grief! Generally, home equity loans can be for 10years, 15 years, it all depends on your lender? Just make sure you have done your homework and made an intelligent decision before moving forward!
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