Opinions On Home Equity Line Of Credit
Home equity line of credit is also known as HELOC for short. It is a kind of credit that is given out to people who have managed to build equity on their homes. Equity is nothing the total value of a house less the mortgage or debts on it. This kind of credit is quite similar to the credit given for credit cards. When a person has equity, he or she is given up to a certain amount based on the equity. Then the person can draw from that amount as and when the need arises.
Opinions on home equity line of credit are varied. While some people are for it, others are against it as the house is used as collateral for the credit. Therefore, to get a fair picture about this kind of credit, it is necessary to study the advantages and disadvantages of home equity line of credit and then make up your mind.
The advantages of home equity line of credit are as follows:
- The interest rate levied on the credit is lower than other loans and credit cards.
- The cost of getting this credit is comparatively low.
- The credit can be used to consolidate debt, do home improvement, pay for college tuition, buy a new vehicle or even pay for a family vacation.
- If you are looking for short term finance, then this kind of credit is the perfect option for you.
- There is some amount of flexibility afforded to the borrower where repayment is concerned as the person only repays the amount that is borrowed.
- This kind of credit allows a person to borrow just the amount he or she needs.
- For an emergency, this is a good source of funding.
The disadvantages of home equity line of credit are as follows:
- As this is a second loan, the rate of interest is higher than the primary mortgage and is riskier for a lender to recover the amount if the borrower defaults.
- As the interest rate is higher, the person would need to make higher payments each month.
- In case a person defaults on this credit, then there is the risk of the home being foreclosed.
- The rate of interest for this line of credit is not similar to the interest levied on the main mortgage.
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