Cons Credit Equity Home Line Pro

Bank says I'm eligible but I'm not sure it's prudent.

A home-equity line of credit (HELOC) is a cheap way to borrow money, while keeping your payments minimal. Your interest costs are usually around Prime rate, which is the rate banks charge their best customers, and it should be, because they're taking your home as collateral, which is worth more than the loan.

Personally, I advise clients to use their HELOC because of the lower interest costs, but to not use it to lower payments, as it doesn't help you out if you're not paying off the debt. A HELOC should never be used for discretionary spending, as it is borrowed money.

I would say that if you have the option to obtain a HELOC, that you should enact it, however apply one of these rules:
1) If you are using it to do home renovations, or to purchase a car, set up regular pre-authorized monthly payments, and stick to it the way you would a regular bank loan.
2) If you are consolidating other higher interest debt, keep payments at the same level, otherwise the interest savings will not be realized, because you'll have the debt for longer, and will pay more interest.

2006-03-05 18:12:18 by roscoeypeanut

A home equity loan and a home equity line of credit both provide money from the value of your home. But each one has its pros and cons.

Pros: Flexibility and tax-deductible interest. In most cases, and this differs slightly from bank to bank, they last for 20 years, you get to use them like a credit card for the first 10 years, and repay for the following 10.

Cons: They're tied to the Prime Rate, which is higher than mortgage rates, you only get to use it for 10 years, counts as a second mortgage, and it's generally more expensive than just refinancing your first mortgage with cash out.

2006-12-01 06:07:56 by reene2g

Pro's and con's of both.

Just curious what people "in the know" have to say.

A loan is structured with the intention of you paying it off, with interest, over a fixed time period.

A "HELOC", or home equity line of credit is structured much more like a credit card, where the lenders goal is to keep you paying interest for the rest of your life.

Neither are a very good idea, but the HELOC is worse than than the loan.

2007-08-25 06:57:28 by Emu Non Grata V1.5

I have a rockin' 5.5% mortgage interest rate and I also have a small but maxed out equity line of credit. I'm looking to clear out some debt so that I can become a stay at home mom. I can either refinancing our mortgage to pull out $$ in order to clear out the debt but lose the nice 5.5% interest rate to something like 6.5% OR I can open a new line of credit for just the amount that we need to clear the debt, of course that interest rate would be a bit higher. I'm siding with the line of credit only because if I ever came across some money, I can pay it off. But my husband would rather add it all to the mortgage, for some inexplicable reason. I would like to hear pros and cons and if anyone has ever done this before.
Thanks!!!

It really depends on what interest rates are doing. If interest rates are falling, and you can save 2 percentage points, and you can keep the remaining term the same, then a refinance is better. By 'keeping the remaining term the same' I mean that you don't make your payoff date later than it was originally. For example, if you got a 30 year mortgage July 1, 2000, your payoff date would be June 30, 2030. If you refinanced July 1, 2015, you would want the new mortgage to be a 15 year mortgage so that your payoff would still be June 30, 2030.

With rising interest rates (what we have now), an equity line of credit is better because:

1. The bank will frequently pay all closing costs. You may be required to keep the line of credit for a certain # of years. This does NOT mean that you have to have a balance --- you just don't close the line when it's paid in full.

2. The interest on a refinance is based on the ENTIRE mortgage. The interest on a line of credit is based on only the incremental amount you borrowed. With a standard 30 year mortgage, you already pay, in interest, TWICE the cost of your home. Refinancing frequently extends the pain because you also extend the term. You'll pay enough extra interest to buy your house a third time.

Do the math. Work this out both ways. Generally, with the same or higher interest rates, you will come out better with an equity line of credit.

2007-05-07 15:48:18 by Mama J