Home Equity Line of Credit
Yesterday, we took a look at what a home equity loan is. Today we will address the home equity line of credit (heloc). To be fair, this is technically another type of home equity loan. However, it operates as a line of credit (any line of credit is really another type of loan), and has a few differences from the standard home equity loan.
What is a home equity line of credit?
A home equity line of credit is just what it sounds like: the bank or mortgage broker offers you a certain amount of money, on credit, based on how much equity you have in your house. A line of credit is very similar in the way it operates to a credit card. You have a maximum amount that you can borrow, and it revolves, so as you pay it down, more continues to be available for you.
However, because the heloc is secured by your home, your available money is greater than it would be with a credit card. Also, this second mortgage interest rate is usually lower than a credit card interest rate. In some cases, the mortgage interest rate is even tax deductible on a heloc. Instead of getting your money in a lump sum, as with a more conventional home equity loan, you can take it out as you need it.
What is a heloc good for?
There are many uses for a home equity line of credit. Many people use them as a way to keep a window open for access to the value of their home. It is convenient, because if you find you need more money than you thought, you can simply withdraw more, without applying for another mortgage loan.
Perhaps the most popular use for a heloc, though, is when doing home improvements. Because improvements increase the value of the home, they often outweigh the costs of getting a home equity loan. Additionally, it makes it easier to fund each project, rather than re-applying for a loan each time you need to do something different.
The main pitfall to watch for is getting to comfortable with taking the money out with the home equity line of credit. Remember that it is still debt, and it still needs to be paid back with interest.
Tags: home equity loan, home equity, mortgage interest rate, home equity line of credit,
second mortgage, mortgage broker, heloc
August 28th, 2007 at 11:15 am
[…] of the more intriguing ideas I have seen recently is a rather unique use for your home equity line of credit (HELOC). The HELOC is a second home mortgage that works a revolving line of credit. Basically, […]