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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!
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