Home Equity Line Of Credit

Home Equity Line Of Credit - That Fancy HELOC

Before we go any further lets just get one thing straight: a home equity line of credit is not the same thing as a home equity loan! A loan against your home equity is a one time, fixed amount deal that you take out and repay over a standard mortgage term. A home equity line of credit on the other hand recognizes that your financial needs might change - you have an initial term of withdraw where you can take out whatever funds you need up to your specified limit and you are only responsible for interest charges during this initial phase. When the withdraw term is done you then begin repaying the actual amount you took out. These differences are major and should be considered with great care, but the smaller details that separate the home equity line of credit from the loan will make the decision even more important.

Where a home equity line of credit excels

On average, the rates attached to a home equity line of credit will be lower than for a traditional equity loan - you don't know exactly how much you will be taking out, and in fact that amount might bee very little. You can also change your mind more easily with a home equity line of credit - agree to a loan and you are stuck with the whole amount until you repay it, but most lenders only require you access a very low minimal amount on your home equity line of credit, and you can cut the story short right there.

The dark side - there is always a dark side!

My Mortgage Mission is to provide information - not to sugar coat your home finances in a sales pitch. That being said, a home equity line of credit can be potentially bad because of a few very good reasons:

• By definition they are ARMs, meaning the rates attached to your home equity line of credit will probably going up in years to come.
• Also by definition your HELOC is an interest only mortgage - when the time comes to begin repayment of your loan principal your home equity loan rates may have skyrocketed and you might fall into price shock and fall behind on your regular mortgage payments.
• But the biggest concern from an advocate point of view is that the individual home owner has complete control. You can borrow up to a certain a mount - meaning most people will go for the whole shebang when in fact they really don't need or can;'t afford such a large responsibility.

We say YES! to the HELOC at virtually any financial occasion - just so long as you keep your cool and remember your financial limitations.

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