A house that has good equity and a homeowner with a good credit score is the perfect combination for someone to look into Home Equity Lines of Credit. This type of loan is considered a second mortgage, which also uses your home as collateral can help you manage your finances. People who know about the basics of HELOC can use this to their advantage especially when it comes to house repairs, renovations, college tuition, and even paying off some of their debt.
The most common reason to use a HELOC instead of the traditional home equity loan is due to the flexibility of the interest rates, but that reason alone isn’t convincing enough for many homeowners. If you’re asking Why use home equity lines of credit when you can get a lump sum amount through home equity loans, here are great benefits to choosing HELOC over home equity loans:
The money you borrow through home equity lines of credit can be used to pay off other debt without sinking further into debt. Although interest rates may be higher compared to your first mortgage loan, HELOC offers lower rates compared to credit card providers. You can use HELOC to pay for other debts at a slower pace without worrying about rising interest fees.
Interest and Financial Flexibility
The problem with taking out a traditional home equity loan is after you receive the amount you are no longer allowed to take out another loan. Using HELOC allows homeowners to borrow amount when they need it and in amounts that they need. Plus, if you get a good deal from your leader you will usually just pay the interest for the amount you borrowed at a specific time instead of paying both primary and interest fees for the loan.
This financial flexibility also gives you the chance to borrow money anytime you need as long as you do not reach the maximum amount. If you are good at financial planning you can use your home equity lines of credit for an extended period of time.
Why use home equity lines of credit when you already have your first mortgage? Since HELOC is considered as a second mortgage they are also tax-deductible which lessens the burden when tax season comes your way.
Freedom to Use Funds
This is one of the biggest benefits of choosing HELOC. There is no need to show any papers for what you plan to use the borrowed money on. As long as your house equity and your credit score permits it, you are allowed to borrow money and use it as you please.
Improves Credit Scores
As long as you make all your payments regularly and on time your credit score will get a boost. This opens up doors for other lenders as they will see you as a responsible lender.
You can stand to benefit a lot when you decide to choose HELOC as a loan type, if borrowing is done correctly you can be on your way to financial freedom sooner rather than later.