What You Should Know Before Getting a Home Equity Line of Credit
Deciding on a Home Equity Line of Credit
If you own a primary residency, a home equity line of credit could be useful when you are really experiencing a financial pinch. There are several benefits to a home equity line of credit compared to other forms of borrowing. The article will examine the advantages and disadvantages of a home equity line of credit, so as a careful consumer you will know when it is a good idea to get a home equity line of credit.
First Things First
The first concept that needs to be clarified is that lenders obviously do not give money away. A home equity line of credit is a form of secured credit. That basically means that if you default on your home equity line of credit, the lender could foreclose on your house. This is totally different than the credit card debt you might have. The difference is that most credit card debt is unsecured. If credit card debt is not paid, then the lender could potentially take you to civil court, but you won’t lose your house by not paying your credit card bills.
No Free Ride Here
There are fees associated with a home equity line of credit. One of them is the closing costs of the loan. This requires a loan representative to meet you and complete the paperwork to finalize your home equity line of credit. This fee will be a few hundred dollars, and it usually gets added to the loan amount. Another thing that you will have to deal with is late fees. Late fees could be applied if the minimum payment amount is not received at the due date. If you have a tough month and have to make hard choices about which bills to pay, you will definitely want to make sure you pay your home equity line of credit before paying any credit card bills. If you plan to use a home equity line of credit to pay off your credit cards, you have to make sure that you stop using your credit cards. Otherwise you can very easily end up with more debt than before you got the home equity line of credit.
On The Upside
One positive aspects of a home equity line of credit is that the interest rate is usually lower than credit cards. This will save you a lot of money over the long term. Another benefit is that interest could be tax deductible. Keep the above tips in mind when you are considering a home equity line of credit.