How A Home Equity Line Of Credit Can Fulfill Your Dreams

By: Joseph Kenny

If you have lived in your home for a number of years, then you have had time to have built up some equity in your home. By making regular payments on your mortgage, and having an increase in the value of your home over those years, the equity increases - especially if you have kept the house in good working order and appearance. Through a home equity line of credit you can get access to your equity and use it to fulfill some of your dreams. Here is how you can go about it.

Although there is more than one way to get access to your equity, a home equity line of credit, often referred to as a HELOC, may be your best option. One reason is that you have access to the money in equity, but you do not pay interest on it until you actually draw it out and use it. Initially, when you apply, you are given a credit limit that sets the amount of cash you can get. You are then given access to the money through a credit card or checking account.

A time limit is also set in which you can draw the cash out of the account. This means that you can only use the cash in your home equity line of credit for a limited time - which could be up to 11 years.

The interest that you are paying during the draw period is calculated on a daily basis (usually). The overall time length including both the draw period and the payment period are usually calculated on a 30-year time frame. As you draw money out, you are only paying the interest on the amount used.

A HELOC can work best for you if you have a number of projects that you have the money for, but do not know exactly how much you will need. You can use the money to take that vacation or cruise you have always wanted - to Bermuda, Alaska, Europe, or wherever, to make renovations or additions to your home, to pay for college, buy a car, debt consolidation, or to cover some medical expenses - you decide.

You do need to know about how repayment will take place. Some lenders will require a single balloon payment to be made for the whole amount at the end of the draw period. This will mean that you need to refinance it. Others will simply figure out how much cash you used and then calculate your payments for the payment period - which, in most cases, will fully amortize the home equity line of credit mortgage.

HELOC's often have no closing costs. You do, however, need to find out about the margin that is a percentage of interest above the APR. It is permanent and could double your interest on the loan. Shop around for the best deals and compare the fees, interest rates, time for repayment, and other features. Then - enjoy your equity, and your

What are the Pros and Cons?

On the plus side, home equity loans provide low-cost credit for important expenses. In extreme cases, the risks are that the home market slows and you end up owing more than the value of your home, or that you overspend and default, which means the loss of your home.

For many people the pros outweigh the cons. To be sure if a HELOC or loan is right for you, it is best to consult with a mortgage professional.

When a Cash-Out Refinance Really Works

By: Sarah Scrafford (Guest Writer)

It’s easy to borrow money today, especially if you own a home and have a decent credit history. Lenders are more than willing to offer you money based on the value of your home. A cash-out refinance involves you taking a loan that’s an amount more than the mortgage on your home – if your mortgage is $80,000 on a house that’s worth $175,000, and you need $20,000 for some reason, you could cash-out refinance for $100,000; your creditor refinances your mortgage and pays you $20,000.

Though this sounds similar to a home equity loan, there are basic differences between the two:

· A cash-out refinance is a replacement of your mortgage while a home equity loan is separate loan borrowed additional to your mortgage. The similarity is that both loans are secured against your home.

· The interest rates for both are different, with cash-out refinances possessing lower interest rates.

· Closing costs associated with the deal are higher for cash-out refinancing than for home equity loans.

· Cash-out refinances get you between 75 to 80 percent of your equity while a home equity loan fetches 85 percent.

Knowing when to settle for a home equity loan and when to go for a cash-out refinance can make a whole lot of difference to your debt situation.

· If the interest rates on your cash-out refinance are higher than your those on your current mortgage, it makes more sense to go for a home equity loan.

· Also, since closing and other associated costs are higher with cash-out refinances, check if you can get all these amounts included in the loan itself. Then compare the cost of interest with a home equity loan before you make your decision.

· If you’re comfortable making repayments on just one loan instead of juggling around many, a cash-out refinance will work for you.

· If you borrow more than 80 percent of your equity in a cash-out refinance, you’re obliged to pay for a private mortgage insurance or shell out a higher interest rate.

· Cash-out refinances are good when interest rates fall and you want to lock in on the new rates rather than continue to pay the higher, old rates.

· They’re also suitable options when you want to spread out your payments over a longer period of time to bring down your monthly dues.

· Both cash-out refinances and home equity loans are tax deductible, so if you’re looking for some money to pay off a debt that’s not tax deductible, either option will do.

· Cash-out refinances hit you where it hurts the most when the real estate market falls and the value of your home drops suddenly and you find yourself in a predicament if you decide to sell.

· Check around to see if a home equity line of credit (HELOC) loan will work better than a cash-out refinance - HELOCs are advantageous because although you borrow a lump sum of money, you pay interest only on what you use. Also, you can access the money like you would your bank account, drawing what you want at your convenience. A HELOC does not charge interest if you repay what you withdraw before the grace period, similar to running up charges on your credit card.

· A cash-out refinance is good when the extra money is spent on an asset (or expense) that has a long-term value or an equally long life as the loan. Improvements to your home or the purchase of a second home are perfect uses for cash-out refinance money.

Cash-out refinance or home equity loan – there’s a common thread that binds the two, the fact that you could lose the roof over your head if you’re not careful about your repayments. Use both loans wisely since they’re secured with your most valuable financial asset - your home.

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This article is contributed by Sarah Scrafford, who regularly writes on the topic of Best business practices. She invites your questions and writing job opportunities at her personal email address: sarah.scrafford25@gmail.com.