Home Equity Line of Credit - A Good Alternative to a Home Equity Loan

Because the home is such a sacred investment, it is important to consider carefully before taking out a home equity loan on it. This is especially true if the home has been paid on for quite some time, or is owned free and clear. Many people make a vast mistake when they take out a loan on a home that has already been paid off. For this reason consider carefully whether or not the purpose for the loan is important enough to risk your home, should something happen resulting in a loan default. Things like sending a child off to college, or paying off debts, or even projects that will increase the value of the home are some of the most popular reasons that people take out home equity loans. However, there is another alternative which can help a homeowner obtain just enough money for their purpose. This alternative is called a HELOC (Home Equity Line of Credit)

Choosing Between a HELOC and a HEL

The good news is that homeowners with good credit can always choose a HELOC (Home Equity Line of Credit) rather than a HEL (Home Equity Loan). A Home Equity Line of Credit is just that, a line of credit which is given to a homeowner based on the value of the home. This enable the homeowner to use only whatever portion of money that is needed, in contrast to taking out a loan in a lump sum amount. For example, a homeowner who takes out a HEL may ask for $50,000 when they really only needed $25,000. In the end they wind up paying interest on the full amount when in fact they could have easily limited the loan to $25,000. With a HELOC, the money is there if needed but you only pay interest on the actual amount you have used. This can be a very good alternative to a standard home loan.

Choosing a HELOC Lender

There are a number of HELOC lenders and each of them has a different set of HELOC rates as well as a variety of terms and conditions. There are many HELOC calculators available online that will help you get a better idea of how much interest you will be paying on whatever amount of money you spend. Do not just go with the first lender you find. Make sure you do a lot of homework and check each financial institution out thoroughly. As a rule of thumb, making impulsive decisions in any matter associated with finances can result in grave consequences, so beware of anything that seems too good to be true. If you are still unsure which lender would be nest for you, consult a financial advisor but make sure you choose one with a good reputation. While there will be extra fees associated with hiring an advisor, in many cases it will be worth the extra cost.

No matter which method you wind up choosing in order to realize a little extra money for whatever project you may have, keep in mind that loan and credit line defaults are serious matters and can lead to a lot of problems in the future. With that in mind, never borrow anything which you are not sure you will be able to pay back according to the terms of the loan.