Jason Bonarrigo Explains: When Is a HELOC a Good Idea?

By: Expose Yourself PR
 
BRAINTREE, Mass. - June 4, 2014 - PRLog -- If you have equity in your home, you might be eligible to borrow a home equity line of credit, or HELOC using that equity as collateral for the loan. Equity is essentially the “paid-off” portion of your home loan. A HELOC can be a big help to homeowners who need funds for home improvements or large expenses like educational costs or medical bills.

Here are a few things to know about HELOCs to help you determine whether such a line of credit would be a good fit for you:

What can a HELOC be used for?

A HELOC is essentially like a credit card, in that it is a line of credit with a certain limit. You can use a HELOC as you would use cash, but a wise HELOC borrower would use it for major expenses such as education, home improvements, or other long-term needs that will see some sort of investment or return in the future – or as a last resort for emergency medical expenses, debt consolidation, or other unforeseen cash needs. Frittering away a HELOC on small things won’t yield you much of a return in the long run; rather, it will simply reduce the hard-earned equity you have in your home. A HELOC can also function, unused, as a “safety net” against any unforeseen expenditures for which you do not have a cash reserve. If you find yourself in a financial pickle, a preexisting HELOC might just save you from the inability to pay for an unexpected expense.

What is the interest rate on a HELOC?

HELOC interest rates are variable rather than fixed, which means they can fluctuate over time. The rate is usually based on an index like the prime rate. If you’re thinking about taking out a HELOC, you’ll want to have a conversation with your lender about how that rate is calculated and what type of fluctuation you might expect during the life of the loan.

What are the drawbacks of a HELOC?

Because a HELOC is tied to your home loan, failing to make payments could result in a home foreclosure. To reduce this possibility, lenders often require their borrowers to have a certain amount of home equity in order to qualify for a HELOC. Your lender can explain those specific guidelines to you when you inquire about a HELOC.

Can I pay off a HELOC early?

Just as with a credit card, a HELOC carries a minimum monthly payment. If you wish to pay off the loan early or make payments greater than that minimum expectation, you could end up paying off the line of credit early and save yourself some money in terms of interest.

If you’re looking for some extra cash to finance an endeavor you don’t quite have the funds to manage, a HELOC can be a good alternative to high-interest credit cards. If you’re thinking about a HELOC, contact your loan officer and ask about whether you might qualify and the expectations that would accompany your HELOC.

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