Do you need money for an unexpected or needed expense? If you are a homeowner you may want to consider taking out a home equity line of credit. With a home equity line of credit you will have money waiting for the expenses you do and don’t expect to arise in the future.
If you are thinking about whether or not to obtain a home equity line of credit consider these facts before making a decision:
- A home equity line of credit is approval from a lender to borrow up to a certain amount of money anytime you want. This money is lent to you by a lender based on the amount of equity you have in your home. Once the money is borrowed, preset arrangements have been made for you to pay back the money in monthly payments just like with a credit card.
- You obtain a home equity line of credit through the same process as getting a mortgage loan. You have to show your credit, income, employment, and personal information to the lender. Then the lender has the home appraised and they see how much equity you have in your home. Once this is done then the lender tells you how much your home equity line of credit can be set up for and you finish the paperwork.
- A home equity line of credit is there when you need it. Many times when people need money or credit the most it is difficult to obtain because they may no longer meet the lender’s criteria. For example, you may have just lost your job and need enough money to pay the bills for 2 months because you have gotten a new job, but you don’t start for 4 weeks and you have to wait to get paid for a couple weeks after you start. With no job you will not be able to get a loan for the money you need to get by. However, with a home equity line of credit the money you need will be there without any further qualifying.
- Once you pay any borrowed money from your home equity line of credit, the money is there for you to use over and over again. If you have a home equity line of credit for $30,000 and you take out $10,000 for a new roof on your home. You pay monthly for 2 years and pay off the $10,000, and now you can borrow up to $30,000 again. As long as you make your payments on time the home equity line of credit is there for you when you need to borrow money. This is an advantage to home equity loans or refinancing because with a home equity line of credit you do not have to go through the approval process or pay the fees every time you want to borrow money.
- You can have a set interest rate that does not change. If you lock in a certain interest rate when you open your home equity line of credit then you will not have to worry about higher interest rates in the future if the market rates change.
- There are no pre-payment penalties with home equity lines of credit. Most mortgage loans have a pre-payment penalty if you pay off the loan too early. With a home equity line of credit you can pay off what you borrow as quickly as you want every time you borrow money.
A home equity line of credit does offer many benefits compared to second mortgages or refinancing, but you should also consider all of your options and spending habits before you make the decision to take out a home equity line of credit. If you are likely to over stretch your credit to the point where you may lose your home then a home equity loan or refinancing may be a better idea for you. Be careful if you do choose a home equity line of credit so that you do not borrow money for frivolous purposes and regret the decision later.