Having the means to tap your home’s value is a great resource to have for when you’re suddenly faced with an emergency need for cash such as for an unforeseen illness, vehicle repairs, or home expenses that are not covered by insurance.
Who wouldn’t want access to a cash source that offers lower interest rates than a credit card and offers you flexibility with the amount you need, right? More so that applying for loan after loan can become very taxing.
This is where applying for a HELOC or a home equity loan comes in. You apply to get a line of credit based on your home’s equity and you can reuse and repay it a number of times. Sounds great? Then you better read the other facts about getting a home equity line of credit below!
It Resembles Using A Credit Card
A HELOC can be used for multiple expenses or repurchases, repaid, and used again; just like having a credit limit for credit cards. You only pay interest on the actual amount used and won’t be charged anything on the unused portion.
Unlike a credit card, though, a HELOC’s interest is much lower and that there are nearly no fees charged for getting a cash advance, even up to 100% of what you are allowed to borrow. This is a far cry from the 20% limit for credit cards. Note that a HELOC can only be used for usually maximum of 10 years until you need to reapply for one.
It Will Give You Freedom to Spend But Don’t Abuse It
Though a HELOC gives you so much flexibility, understand that it can result to increased debt if used irresponsibly. This means that you shouldn’t use it for frivolous things such as having grand vacations, buying expensive gadgets, splurging on clothes, and similar things. Use it for when you are unemployed, need to spend for a wedding, got a huge medical expense, have to pay for tuition, got a significant business expense, need overdraft protection, or when faced with an emergency such as multiple big bills at the same time.
It Has a Highly Variable Interest Rate
A HELOC’s changing interest rate can work for you or against you. You’ll have lower payments to make when interest is low and the opposite is true if interest rates are high.
You can opt for a a hybrid HELOC that allows you to lock on a fixed interest rate but be sure that you won’t end up on the losing end if you choose this by having your lending professional assess if this will work for your specific needs and means. The locked interest rate should be reasonable enough for you not to have future repayment issues.