What is a Home Equity Line of Credit?
First things first: a home equity line of credit is a loan against the value of your home. Instead of getting a lump sum like a second mortgage, you’ll have a line of credit that you can draw on with a debit card, checks or credit cards. Each one will have its own rules so make sure you have a smart mortgage broker (hint hint) to help you understand all of the terms of the loan and make the most of it. But why would you want a home equity line of credit instead of a second mortgage? What are the benefits and is it right for you? Keep reading and find out!
Advantages
If a home equity line of credit sounds like a breath of fresh air, that’s because it is. When you accept a home equity line of credit you won’t actually have to spend the whole thing. The difference between it and a second mortgage is that with the latter you get the whole lump sum and you’ll have to pay interest on all of it. With a line of credit you only pay interest on the amount you spend, so if you want to save money and use it wisely, it’s the way to go.
Disadvantages
If you need a large lump sum, you should look into a second mortgage or private mortgage for a better fit. Either way you go, you’ll want to consult with one of our talented mortgage brokers who can help you decide how to bank on your home’s equity to make the most of it. You’ll need to be careful about who negotiates your home equity line of credit since this is something you’ll be living with for a very long time.
What Can They Be Used for?
There are zero restrictions on a home equity line of credit; you will want to use it wisely since your home is the collateral for your debt. The first thing you should do is reinvest it into your home! If you have any problems like a leaky roof or a kitchen that could use some TLC take care of that first. The second most common way people use their line of credit is debt repayment. If you have debts you can pay them off and then repay the money you borrowed against your home equity at a better interest rate than you had on your debt. The third most common use is education and starting a business. However you spend it, keep your face towards the future and make it count.
Is it Right for You?
Home equity lines of credit can be taken out even if you have bad credit, but again if you can’t pay the loan back you may lose your home. You don’t have to borrow the total value of your home, and you’ll only pay interest on what you spend. If you need a flexible credit option without all the snags that a traditional second mortgage can bring you, see what a home equity loan can do for you.
