Equity Line Of Credit: Can It Really Help?

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When times get tough and the light at the end of the tunnel is getting farther, it may be best to make use of your best asset, your house. If you need borrowed funds to finance an important thing, like paying medical bills, home improvement, college fund, you may want to put your home as collateral to take out a loan. There are many types of loans available for you from banks and lending institutions and there’s no loan that is best for all homeowners. However, one of the options that are a popular choice for many homeowners is a home equity line of credit.A home equity line of credit or HELOC is a loan in which the lender agrees to lend an amount that has a maximum value within an agreed period or term, wherein the collateral is the equity in the borrower’s home. This shouldn’t be confused with a home equity loan because the amount will not be given to you at lump sum, but you will be able to withdraw any amount over a draw period which is usually 5 to 25 years. You will be given a special check or credit card for you to make your withdrawals.A HELOC can be liken to a credit card, where you will be assigned a credit limit and you only pay back what you use plus the corresponding interest. You may only pay the interest of your outstanding balance monthly, which usually is your required minimum monthly payment. The interest rate though is not fixed as it is usually tied to the prime rate- the rate at which banks give to their most creditworthy clients. Such type of credit will require you to pay a balloon payment at the closing, or they may offer you a refinancing to pay off your outstanding balance.Before signing up for a HELOC, you need to determine in what way you will be using your borrowed fund. If you need a large chunk of money right away, you need to take out a home equity loan. But if you only need the many over a period of time, like paying for college expenses every semester, or a home improvement that will take time to complete, a line of credit is the best option. A line of credit is highly recommended for those homeowners who have already paid for their first mortgages and may now need readily available cash if the need arises.A home equity line of credit is a convenient and flexible source of money but you have to think very carefully if you need it or if you can pay for it at the end of the term. Remember, your home will be at stake here and you can lose it if you can’t pay off the money you withdrew. You should carefully study the agreement that you will sign and read and understand all the fine prints. Federal Truth in Lending Act requires lenders to inform you about the terms and costs of the plan at the time you are given an application.

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