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What You Can Do with a Home Equity Loan or Credit Line


Perhaps you have read about the different ways in which a second mortgage can put money into your hands for home improvement projects, large-scale renovations, and other big expenses, but did you know that a home equity line of credit maybe a better way to finance those projects in a more frugal and efficient manner?

Great Possibilities for Your HELOC:

  • Modernizing the appliances and furniture in your dwelling.
  • Financing college or university for your adult child.
  • Renovating or remodeling your house.
  • Buying a new car.
  • Making repairs to the structure of your home.
  • Affording a once-in-a-lifetime travel experience.

The Benefits of a Line of Credit

Often times, when we begin major home repairs or improvements, we have a contractor's estimate or the numbers we have calculated in our own heads – numbers that may or may not be entirely accurate.  While it is certainly possible to take out a second mortgage in one lump sum, that leaves the possibility that you may end up paying interest on more money that you really needed, or that you will run out before your project is completed.

In other cases, you may want to work on your repairs or renovations bit by bit.  Perhaps you have planned to purchase new appliances and furniture for your home.  Chances are, you are not going to go shopping for the entire house in one trip.  If you are likely to space out your expenditures, you may find that a home equity line of credit is more economical since you will be paying only on the portion you actually use at any given time.

More Than Just a Loan for Your Home

Beyond home projects, though, a HELOC can be useful in other ways.  Many parents use a second mortgage to finance college educations for their children, but a line of credit can give them access to the same amount of money – and leave money available for incidentals like books, food, and housing.  Other uses include purchasing a new car (because the interest rates on home loans are typically lower than those for car loans), taking a once in a lifetime, expensive family vacation, or tackling any other costly endeavor.

What to Consider First

Before you decide to borrow against the equity in your home, make sure that you are prepared to pay back the loan you take.  HELOC's have adjustable interest rates, so it is important to be aware of – and make provisions for – rate fluctuations.  Typically, you are also able to pay only the interest for a lengthy period of time, so you should make sure to find out up front how long your loan will be interest-only, and how much your payments will be when you begin paying on the principal as well.  If you can, you should make payments that specifically address the principal even before those are required.

Another important factor to consider is whether or not you are borrowing against real equity or instead creating a situation in which you wind up with negative equity in your home.  In an ever-changing real estate market, it is important to be realistic about how much value your house truly has.  Although your mortgage professional will work with you to evaluate your situation, you should do your own research to determine whether or not you are biting off more than you can chew.

Remember, a line of credit can be an excellent way to finance the big expenses in life.  As long as you make careful decisions and work with trustworthy lenders, you should start seeing the benefits of your wise borrowing very soon!


Candidates for a Reverse Mortgage:

  Retirees Who Own Their Homes
    If you own your home outright, a reverse mortgage may be a good way for you to finance your retired years and collect on the equity you have built.
  You Don't Have Heirs
    If you do not have children or grandchildren to whom you wish to leave an inheritance, you would be wise to enjoy the equity in your home as you age.
  You Never Plan to Sell
    A reverse mortgage is paid off when the home is sold, so if you plan on staying put, this can be a great way to make the most out of your property.
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