The home equity line of credit gives you access to a countless amount of cash, you can get up to 80-89% of the value of your home. You will not get a home equity loan on the part of the mortgage you have not cleared for your house. Most people get a home equity line of credit for major repairs or investments in the property. These renovations have the ability to increase the value of your property but there is also a risk of losing the home of you cannot make the payment. The home equity line of credit (HELOC) is so much like a basic credit card except it gives you immediate access to your home equity. The biggest difference in credit scores is that some lenders will treat the HELOC like loans instead of revolving credit lines.
Here is why you should avoid home equity line of credit.
The HELOC can help you make home repairs and upgrades, consolidate your credit card debts, start a new business and even meet some future financial goals; but these things don’t always end up in a positive way. It may offer some lower interest rates but you risk foreclosure of your home if you fail to make the payments on time.
If your income is unstable, always avoid this type of credit. An unstable income means it keeps changing now and then. There is a huge possibility that the income may change for the worse In the future. Making the payments under these conditions can be rough, especially if you have other financial commitments. If you fail to keep up with the monthly payments, the lender will be forced to move you out of the property. The foreclosure of a home due to procedures and payments are different across several regions. The lender can also choose to freeze your access from the equity line of credit if they predict that you can’t make the payments on time.
If you cannot afford it, why take the home equity? The payments, costs are not worth it if you are planning on using only a portion of the home equity loan. Just like your fist mortgage, you will need to make legal payments, application fee, title fee and other payments. These charges may cost you a lot for someone who is not desperately in need of any money. If you are not looking to borrow any money in the first place, why do it? For small loans, a low interest credit card will do.
When you get a HELOC, the interest rates on your mortgage will automatically go up. It is probably not wise to get the equity if you know you cannot afford to make the increased payments. Only a few people can get the fixed rate line of credit. The adjustable loan rates increase overtime meaning you will make more payments gradually until you cannot afford to anymore.
Lastly do not take on equity if you are planning on using it for basic amenities. You can get that kind of money from short term loans. If it is not an investment, you are definitely wasting the HELOC.