Home Equity Line of Credit (HELOC) Benefits

Once you have taken the leap and bought a home and are making monthly mortgage payments, you are in the process of building equity in the real estate. The opportunity to use the home equity you have built up in your home is one of the benefits of home-ownership.

The equity you have built up can be used for many purposes on your advantage. Many people will use this equity to draw out cash by refinancing their house; the cash may be used to finance other major purchases such as down-payment on another property, making major improvement to your current property or to fund their children educational expenses.

If you are in bad debt such as with high interest rate credit cards, your home equity can be used to pay off the high interest debt and thus saving you from bankruptcy. You can pledge your equity to apply for a home equity loan which will allow you to borrow a relatively large amount of money to consolidate your debts. As compared to other personal or unsecured loan, a home equity loan is easier to get approved even if you have bad debts and less than perfect credit score; lenders may be more liberal because they view home equity loan as relatively safe. You can't disappear with your house or hide it if you default on your loan, so the lender has a good chance of collecting the collateral.

Besides using your equity for bad debt consolidation, you may use it for other high-interest rates debt consolidation. One of the advantages of home equity loans are they typically have lower interest. And you could use this advantage to consolidate all your high-interest monthly payments into a single loan which has a considerably lower interest rate.

Typically you are allowed to refinance up to 75%, (sometimes 80%), of the value of the property on conforming loans whereas on jumbo loans you are limited to 70% of the property's value. For example, if your home is now valued at $150,000 and your loan balance is $70,000, you might be able to get a new $150,000 x 75% = 112,500 mortgage. That would allow you to repay the existing $70,000 balance and use the $42,500 for your financial needs.

Another possibility to use the equity to your advantage is home equity lines of credit. Many lenders offer home equity lines for homeowners and allow them to draw cash advances with their credit card or write checks up to certain credit limit. So this is a good way of ensuring you have funds available in case of an emergency.

Before using a home equity loan or home equity credit line for any purpose, you should be aware of the pitfalls of these loans. The main thing is that you can lose your home if you fail to meet the payment schedule required by the loan. Therefore you need to consider it carefully before do a cash-out with your equity.

For more information, contact out knowledgeable brokers at Loan People USA.


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