The home equity line of credit or HELOC is an ingenious financial instrument that lets you borrow cash on your home equity. It’s also known as a reverse mortgage because you only need to pay the interest and there’s no final date when the line of credit will be repaid. While it’s considered a low-risk loan, HELOC is only available for people with loans and existing mortgage.
Here are some of the advantages of a HELOC:
Higher Credit Limit
The home equity line of credit has a higher credit limit than credit cards and other loans. In most cases, you can have a line of credit as high as $ 100,000. Some lenders can push higher amounts, depending on the total value of your home. With this high credit limit, you can redraw variable amounts of cash. Afterwards, you only need to pay interest based on the amounts that you withdrew. One of the reasons why HELOC has a high credit limit is due to the minimal risk. Lenders are hedged because your home is at stake.
Some experts believe that HELOC is more reliable than a personal loan. Personal loans will only give you meager amounts while HELOCs can get you a lump sum that can be used for different purposes. Time is also on your side if you took out a HELOC. Once you’re pre-approved, you can withdraw money as soon as possible. Not all banks and lenders have the same policies, though. For your convenience, you should do a refined search online until you came up of an acceptable HELOC provider.
Good for Home Renovation Purposes
Do you want to add an extra room in your home? How about a small swimming pool? These extension and renovation projects are now possible with the help of HELOC. Since it’s flexible, you can use the loan anyway you want. But it’s wiser to use the loan for your home because its overall value will improve. With a higher home value, you can apply for higher home equity loan amounts someday.
Exceptional Credit Rating Booster
After taking out a HELOC and paid it successfully many times, you can see a huge increase in your credit rating. Many borrowers have been using HELOCs to carve their credit reputation – on top of the loan’s plethora of advantages. It pays to know the status of your credit rate before applying for HELOC. This way, you can plan on how to utilize the loan for the coming years.
Even if a home equity line of credit is advantageous, you shouldn’t take it lightly. Missing out a payment will remove the equity from your home, and the bank may foreclose. The home equity line of credit is not for people without financial discipline. Before applying for one, make sure that you’re ready for the responsibility. You also need a financial plan that will cover a minimum of ten years, especially if you have a mortgage.