Pros and Cons of Home Equity Lines of Credit – HELOC

A home equity line of credit or HELOC is based on the equity of your home. The equity in your home is the total value of your home minus the mortgage and / or lien. The home equity line of credit is used just like a credit card. You are given a set sum amount which you are allowed to draw from. There are both pros and cons to weigh when deciding whether or not a home equity line of credit is the right choice for you. The following is a list of some of the pros and cons of a HELOC.

Pros

* HELOC's usually offer a lower interest rate than other loans and / or credit cards.

* The costs of obtaining a home equity line of credit are relatively low.

* Home equity lines of credit can be used for debt consolidation, home improvement projects, college tuition, the procurement of a new auto or even a vacation.

* The HELOC is an excellent option for short-term financial needs.

* A home equity line of credit allows the borrower to have some flexibility when it comes to repayment since the borrower is only repaying the amount which was borrowed.

* Home equity lines of credit lets you borrow only the amount that you need.

* HELOCs can be a good source for funds in case of emergencies

Cons

* Since the HELOC is considered to be a second mortgage, the rate is higher than a fixed-rate mortgage, making the loan somewhat riskier for lenders to recoup their investment.

* A higher interest rate means higher monthly payments.

* If you take out a home equity line of credit and fail to make your payments, then you put your home at risk for foreclosure.

* The interest on HELOCs is not the same as the interest on a primary mortgage.

Source by CL Haehl

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