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HELOC a wise choice for some

Benefits of getting a home equity line of credit

Posted on 8/2/13 10:46:00 AM

Want to make those important house repairs, but unsure if the costs are worth the hassle? Want to send your kids to college, but can't dip into your IRA? Need a procedure, but are wary of the medical bills that could hang over your head? Investing in a home equity line of credit can help ensure that you're prepared for the future while still concentrating on the present.

A home equity line of credit allows you to borrow money by using your house as collateral like you would a credit card. The bank lends you money at a given rate and you can pay off those important bills before they become a problem. For those with solid employment who want to keep their retirement accounts intact, an equity credit line remains a great option.

There are multiple variations of a home equity line of credit. A fixed rate home equity line of credit keeps your interest rate the same for as long as you need the extra money. A traditional equity line of credit ebbs and flows as interest rates fluctuate. Consulting with a licensed professional who could explain your options can provide peace of mind that your financial future is secure.

Why home equity?
Using your home as collateral may sound like a risky move, but when compared to alternatives, it makes a lot of sense.

Taking money out of your IRA before it matures could lead to steep penalties and a litany of fees. With mortgage interest rates rather low, you can use the value of your house as proof of your credit and not have to worry about added fees or high interest rates.

Credit cards usually carry higher interest rates, sometimes upwards of 20 percent, causing you to pay more than you should. Equity credit lines offer lower costs and better interest rates.

In times of significant financial crisis or distress, basic savings rarely are enough to cover the costs. A home equity line of credit can hold you over as you get back on your feet without having to sacrifice your long-term planning or worry that you can't buy food for the week.

Equity credit lines can also provide the financial windfall to send your children to college. Student loan debt has toppled $1 trillion overall with the average cost per student nearly doubling in the past 20 years. Helping your children navigate their college years could help them enter the workforce on a path to buying their own home someday soon.