Mortgage / Equity

Home Equity
Home Equity Line of Credit Advantages

A home equity line of credit gives individuals advantages that they don’t get from a mortgage or home equity loans.

The biggest advantage to a home equity line of credit is that you only have to pay back the money you actually use. This means that a homeowner only has to pay interest on the funds actually spent.

In a mortgage or a home equity loan the borrower has to pay back the full amount whether they use it all or not. The borrower is also obligated to pay interest and other charges on the full amount. This increases the debt load on the house, raises the monthly mortgage payment and limits the amount of equity available to the homeowner.

A home equity line of credit allows a homeowner to limit the debt load on the house and the interest they will pay. This also allows the borrower to keep more of the home’s equity available for future use. It can also allow a homeowner to recover more the home’s value if they sell the dwelling.

Avoid Unnecessary Loans

One of the best home equity line of credit advantages is that it can be used to cover expenses where the homeowner doesn’t know the upfront costs. Examples of such costs include repairs, remodeling, additions to the home and acquiring additional land.

It is often impossible to know what such projects will cost until they are actually completed. This means that the amount of money borrowed might actually exceed the cost of the project. A home owner could end up paying back loan money they didn’t use. The person would also be paying interest on money they didn’t use.

Cover Unexpected Added Costs

Anybody who has any knowledge of construction knows that the cost of repair and remodeling projects often end up exceeding the estimates provided. This means that a homeowner could be faced with final costs that exceed the amount borrowed. A family could be forced to take out another loan in such a situation. Taking out another loan could saddle the family with more interest and additional costs.

A tremendous home equity line of credit advantage is that the family would simply use more credit to cover additional costs. This means that a homeowner won’t have to take out additional loans to cover added costs to projects.

This also means that a homeowner doesn’t have to limit a project’s scope or forgo repairs or needed remodeling to avoid taking out another loan. Instead the homeowner will have the funds available to complete the work the first time around.

Protect Your Credit Rating

Homeowners can also use a home equity line of credit to protect their credit rating. Taking out additional loans or mortgages will lower your credit score and make it harder and more expensive to borrow money in the future.

Additional loans will come with higher interest rates and additional costs. A homeowner could end up paying hundreds in additional interest and other charges if they didn’t take advantage of home equity line of credit advantages in the first place.