How to Know if a Home Equity Line of Credit is Right for You
A home equity line of credit is a unique lending instrument that allows you a lot of financial flexibility. The home equity line of credit is a variation on the traditional home equity loan that is perfect for certain people. However, it is definitely not for everyone. There are a number of situations that warrant the use of a home equity line of credit. Therefore, you will need to assess your need for one before you choose it over other types of finance. Here are a few things to consider before you get a home equity line of credit.
How it Works
A home equity line of credit is different from a traditional home equity loan in several ways. With a home equity line of credit, you do not have to borrow a certain amount of money over the life of the loan. With a home equity loan, they give you the entire amount of the loan upfront and then you immediately start paying it back. With a home equity line of credit, you open the account and then borrow money as you need it. You might be required to borrow a certain amount of money at the beginning but you do not have to borrow the entire amount. Then you take it out as you need it. Once the initial draw period is up, you then are required to pay back the money that you borrowed.
With a home equity line of credit, you are given easy access to the funds. Therefore, if you value having a simple way to access funds, then a home equity line of credit could be for you. They will typically give you a checkbook or a debit card in order to use the funds. When you need to buy something, just write a check for it or swipe the card. The money will be transferred just like you were using a checking account.
One particular group of people that love home equity lines of credit are those that are self employed. When you are self employed, your income is sporadic. You do not always have a regular paycheck coming in. However, your expenses are still regular. You have pretty much the same bills every month, but you never know exactly when you will get paid.
Having a large line of credit to use can be very beneficial for this type of situation. Throughout the month, you use the line of credit to pay for everything. Then when you get paid, you simply repay the amount that you borrowed and get the balance back down again.
When to Get One
If flexibility, easy access, and a great source of emergency funds is appealing to you, then a home equity line of credit might be the way to go. A good line of credit can provide all of these things and make your life much easier financially.