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Versatility of HELOC - Home Equity Line of Credit

Article Provided by MortgageLoan.com

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 " a Home Equity Line of Credit "

When it comes to versatility, few lending options can equal a home equity line of credit (HELOC).  Unlike a home
equity loan, which requires borrowing a lump sum at a fixed rate, the HELOC offers exceptional flexibility.

Your home’s equity can be one of the best ways to find capital when funds are scarce.  And the best way to tap into
this equity is with a home equity line of credit (HELOC), which gives you the flexibility of a credit card and the
tax-deductions of a mortgage.  Since a HELOC allows you to draw funds for myriad reasons, it has become the Swiss
Army Knife of financial instruments.

One credit line, many uses

Popular reasons to tap a home’s equity include home improvement loan needs, debt consolidation, a second home
purchase, vacations, and college tuition. Many small business owners will opt to use a HELOC instead of applying
for business loans, because the process is easier and less expensive.

 
In recent years, debt consolidation has proven to be an extremely popular use for the HELOC. It can drastically
reduce a borrower’s monthly payment by offering lower interest rates than credit cards.  On the flip side of the
coin, people who are debt-free often use the HELOC to buy a car, taking advantage of the tax-deductibility of the
interest payments.

Rainy day fund

It’s a basic rule of thumb to keep three to six months of living expenses stowed away in a liquid account as a
rainy day fund.  Even though it’s a great savings habit, consumers are forsaking savings, and using a HELOC as a
source for emergency funds.  If you choose this route, make sure the lender you select doesn’t charge a fee just to
keep the line of credit open. Just because you have a rainy day fund doesn’t mean the institution should rain on
your parade.

Fee Free

HELOCs can be fee-free.  Avoid a lender who wants to charge you for writing checks or proposes exorbitant closing
costs.  Some lenders might require an appraisal; but there are plenty of lenders who will waive the appraisal fee. 
The cost of writing checks should also be free of charge.

Convert to a fixed-rate loan whenever you want

Since HELOCs are tied to short-term interest rates, they may rise suddenly. If they do, you may find that a
fixed-rate home equity loan can save you money in interest payments over the long-term. If you choose to convert,
expect a higher monthly payment. There may also be additional closing costs, so do the math to see if this move is
right for you.

These features, as well as caps on interest rate increases and no prepayment fees, are all versatile benefits that
underscore the HELOC’s Swiss Army Knife reputation.  About the only thing you can’t do with it is whittle, or use
it to spoon up beans by the campfire.  Short of those tangible benefits, the HELOC could be the versatile borrowing
tool for just about anything you need.
 

Source: http://www.startremodeling.com/heloc_home_equity_line_of_credit.htm