Home-equity line of credit (HELOC) is an often confused option that many use incorrectly or stray away because of ignorance. A home-equity line of credit is sometimes compared to a credit card. (Home equity=Home’ market value minus the mortgage). With a HELOC you pay interest only on th emoney you have borrowed. For example, let’s say your credit line’s maximum is $25,000 you can borrow any amount below the maximum and continually repay and borrow as long as you do not pass your credit limit.
Keep the folowing in mind:
- HELOCs work well for smaller expenses. A Fixed-rate home-equity loan might work best is you have a large amount of money you need to borrow.
- Don’t borrow more than 80% of your equity. You do not want to end up upside-down where you owe more than the house is worth if home prices decrease.
- Try to get a low permanent rate. You might be offered rates that are very low, but increase dramatically later. HELOCs charge a variable rate based on the prime rate so shop around for the best deal.
- When looking for a HELOC try your mortgage lender first because they might be able to offer a good rate since you are already a customer.
- As with many financial products these days HELOCs will sometimes have a lot of fees and stringent requirements. Try to avoid these types of home-equity lines of credit.
- Inactivity fees
- Early termination
- Paying off early
- Closing your account in under 3 years