There are times when you are running out of money and you are turned away by banks. In these gloomy days, the home equity line of credit is a ray of hope. It is one of the biggest perks of homeownership.
Home equity is your stake in the property as compared to one of the lenders. Home equity is a valuable asset for homeowners. The most favorable part is that it often increases without any effort other than your regular monthly mortgage payment.
There are two types of home equity. One is a home equity loan and the other is a home equity line of credit. It is important to distinguish the unique features under each option, ensuring that you get the most suitable type of loans.
How Does Home Equity Work?
Home equity is the appraised value of one’s home minus any outstanding mortgage and loan balances. The home equity gets collected with time as you keep paying your mortgage balances.
Home equity is quite beneficial as it allows you to borrow home equity loans or lines of credit. You can use the loan if you need some spare money for your house renovation or if you want to consolidate debt.
When borrowing money, getting a loan against the value of your home would be the best option to opt for. While paying off for your house, you build equity that can later be utilized as home equity loans or home equity lines of credit.
Home Equity Lines Of Credit
A home equity line of credit is a revolving source of funds, same as a credit card, that can be accessed at your choosing. Several different ways are provided by a bank to access those funds, including an online transfer, check, or a credit card connected to your account.
In contrast to the home equity loan, the home equity line of credit features variable interest rates. However, some lenders may offer a fixed rate policy for some years. The flexibility policies offered by HELOC companies like TurnedAway give you more options to borrow against your credit line with appealing rates. This makes a home equity line of credit a useful source of emergency funds.
In life, there are eleventh hour circumstances that you don’t expect. Maybe you have lost your job due to the coronavirus pandemic, or the banks have turned away your loan requests. In these instances, taking out HELOC (home equity lines of credit) will be the best step to take.
First Phase of HELOCs
Most home equity credit lines consist of two phases. The first phase is a draw period. This draw period is often 10 years, during which you can easily get your available credit. Typically, HELOC contracts require interest-only small payments during this period.
Now you have the option to either do additional payment and have it go towards the principal. At the end of the draw period, you can even ask for an extension. Otherwise, the second phase of repayment starts.
Second Phase of HELOCs
The second phase of repayment may last for 20 years after a 10year draw period. In this phase, the facility to access additional funds is taken back. Now you have to make regular principal-plus-interest payments until the balance disappears.
The second phase demands you to pay back all the money you have borrowed along with the interest. HELOCs have many attributes that make them different from a standard credit line and also offer advantages.
In a nutshell, the home equity line of credit is very beneficial, especially, in various situations where you need to access funds at different times. The attributes of flexible withdrawal whenever you need it and zero interest on the money you don’t need make it the best option to avail in days of a financial crisis.