Home Equity

Learn If A Home Equity Credit Line Is The Right Product For You

If you need to borrow money, home equity credit lines may be one useful source of credit. Home equity credit lines may provide you with large amounts of cash at relatively low interest rates. In addition, they can provide you with certain tax advantages unavailable with other kinds of loans.

Popularity And Different Loan Types

Borrowing through home equity credit lines has become a popular source of consumer credit. Lenders are offering these home equity credit lines in a variety of ways. You will find most loans come with variable interest rates, some come with low introductory rates, and a few come with fixed rates. Also, you may find most loans have large one-time upfront fees, others have closing costs, and some have continuing costs, such as annual fees. You can find loans with large balloon payments at the end of the loan, and others with no balloons.

Not every type of loan is right for any homeowner. The challenge, then, is to contact different lenders, compare offers, and select the home equity credit line adequate to your needs.

Home Equity Credit Lines' Drawbacks

Home equity credit lines require you to use your home as collateral for the loan. This may put your home at risk if you are late or cannot make your monthly payments. Those loans with a large final (balloon) payment may lead you to borrow more money to pay off this debt, or they may put your home in jeopardy if you cannot qualify for refinancing. And, if you sell your home, most plans require you to pay off your home equity credit line at that time. In addition, because home equity loans give you relatively easy access to cash, you might find you borrow money more freely.

Alternatives: Home Equity Loans

There are other ways to borrow money from a lending institution. For example, you may want to explore second mortgage loans. However, these plans also place an additional mortgage on your home; second mortgage money usually is loaned in a lump sum, rather than in a series of advances made available by writing checks on an account. Also, second mortgages usually have fixed interest rates and fixed payment amounts.

Other options include borrowing from credit lines that do not use your home as collateral. These are available with your credit cards or utilizing unsecured credit lines that let you write checks as needed. In addition, you may want to ask about loans for specific items, such as cars, boats, or tuition.

Before rushing in, you should consider all your options and see whether you would benefit from a home equity credit line or you would do better with other financial product. And if you decide to request a home equity credit line, request different quotes and compare what each lender has to offer. You'll soon learn that by bargaining a little you can get great deals on home equity credit lines.