HELOC – Home Equity Line Of Credit
So you are thinking about a HELOC, that’s the acronym for Home Equity Line Of Credit. When do you use a HELOC. Most people use these lines of credit to make major purchases such as a consolidation loan, a room addition, a vacation, purchase a car. To get this type of credit line you must be a homeowner because you are tapping into the equity of your home. With a HELOC there are a variety of features depending on the financial institution some will you to utilize 80 percent, 90 percent, and even 100 percent of the approximate value of your home.
A HELOC comes with a rate that is variable and based on the prime rate. So let’s take a look at one advantage here. The prime is hovering some where in the area of 8.25% and if you have $10,000 in credit card debt with interest rates of 18%, then it would be to your advantage to consolidate these into one payment. Not only will you have the convenience of only having one payment but you will also save yourself some money because of a lower interest rate. These rates can go up depending upon what happens with the prime rate.
If you are approved for a line of credit in the amount of $40,000 and you use $5,000 of that you are only charged interest for the amount that you use which is $5,000 not the $40,000 because $5,000 is the balance the $40,000 represents the amount you have at your disposal.
The payments that are due are really flexible because you only pay the interest that is due, of course you can pay more than what is due which allows you to pay off your balance faster.
Other features which vary from financial institution include getting a lower rate by paying any closing costs. And as far as any tax advantages there could be some you could utilize but always check with your tax adviser and never assume anything. A professional tax adviser will let you know exactly what you can and cannot do concerning the area of taxes.
How do you get the money from the line of credit? You are issued some checks and you simply write them out as though they were your own personal checks. Only difference is that the money is not coming out of your checking account it coming from your line of credit. Other ways to get the money include going directly inside of your financial institution’s branch. Still another way is to transfer funds by the phone or even online.
Some HELOC’S come with an annual fee normally in the amount of $50. The type of property needed to obtain this type of line include a single family residence, townhouse, condominium, or rental and investment property. However these can vary from organization to organization, therefore it is best to investigate first.