Because of the recent developments in life, especially in technology, living in the modern world becomes more and more complicated every day that passes. Attending to these complexities is very necessary if you want to live a normal life.
Examples of these complexities are educational expenses, home improvement or renovation expenses, medical bills, home maintenance expenses, and even insurance policies, if you may.
Attending to these things is not simple. They require large sums of money in order to be attended to.
If you are an average person whose monthly income is sufficient enough to support yourself and your family, then you have a problem attending to these things.
With the given facts stated above, how can an average person like you attend to these necessary things that require large sums of money? The answer is very simple – apply for a home equity line of credit.
This article will discuss how home equity line of credit works, thus, guiding you on how to engage in this unique kind of loan.
Paying attention to this guide can help you have a good credit in the future.
What is Home Equity Line of Credit?
A home equity line of credit (or HELOC for short) is one type of loan wherein the creditor allows the debtor to borrow a maximum amount of money (depending on your homes equity and credit limit) within a specified period of time (which is called term) using the homes equity as a collateral or security.
Equity is defined as the difference between the total value of your home and the remaining total mortgage obligation of it.
Like any other loans, it comes with a price in the form of interest rates. But unlike credit cards (which it has similarities with), it has a relatively lower interest rate.
Home equity line of credit is used only to finance your expenditures requiring large sums of money.
It can finance you child’s tuition fee, or you can use it for renovating or improving your home.
You can also use it to pay for your medical bills. If you want to have an insurance policy, then you can also use it to pay for it.
There are many uses of home equity line of credit. Just make sure that these uses require large sums of money, which you do not have.
Advantages and Disadvantages of HELOC
There are several advantages of home equity line of credit. First is that it has lower interest rates compared to other loans (such as credit cards). This can give you comforts of repaying your debt.
Another advantage is debt consolidation. You simplify all of your debts into a single debt, making your life easier by repaying only one debt. With lower interest rates, you can repay this in the soonest possible time.
There are also disadvantages of home equity line of credit. Since it uses your home and equity as a security or collateral, they may take them from you if you can’t repay your debt. To avoid this, just pay your dues promptly.