There is a lot that goes into money matters. Especially when you are in debt, you cannot afford to make the slightest of a silly move. You are considering home equity line of credit, but it is a huge risk nonetheless. To make a wise choice, you must, therefore, weigh down the pros and cons.
The pros of home equity line of credit are many. It is like the light at the end of the tunnel in many ways.
- When compared to the standard home equity loans, the home equity line of credit offers you lower upfront costs.
- Home equity line of credit gives you an advantage of drawing your money when you need it. You can have access to your money whenever you wish, just like using a credit card.
- As for the closing costs, with ahome equity line of credit, you have the benefit of paying little or none at all.
- When it comes to interest rates, a home equity line of credit is beneficial for you as it allows you not only to borrow money, but it does that at low-interest rates too.
- During your draw period, with ahome equity line of credit, you do not have to make any other payments other than interest. However, this does not apply to all lenders. While some may give you room for it, others may not.
- With home equity line of credit, the interest paid can be tax deductible.
Although they might be few, you must still know about them just so that you watch every step that you take before making a big decision. You must also keep in mind that these cons may not apply to all lenders.
Different lenders tend to give you terms and conditions that will vary accordingly. However, you must know which one to choose from.
- Sometimes there is a minimum amount that has to be borrowedto get a home equity line of credit. This can be a major disadvantage. You did not want to borrow money in the first place, but since you have to, you also have to pay interest for it. Similarly, sometimes the lenders will ask for a minimum amount of withdrawal with every draw that you make. Thiscan cause a huge overall inconvenience.
- Since a home equity line of credit is a mortgage that does not have a fixed rate, it would imply that your interest rates might fluctuate. Similarly, when the interest rates change, so will your payment rate.
- Sometimes you have to pay the penaltyfor a home equity line of credit. When you somehow do not use it, close it before time, or even if you make your complete payment ahead of time, you will be required to pay an amount.
- After all, the home equity line of credit is a debt, and if you do not pay it off timely, you will lose your home equity, which in itself is a huge loss.