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Home Equity Line of Credit

For those with good credit, a mortgage in decent standing, and a relatively (depending on the bank's definition) sizeable difference between a home's worth and the balance of a mortgage, a home equity line of credit may be a good option for those needing a loan. Home equity lines of credit (or HELOCs) can be used for anything: Paying off other debt, taking a holiday, paying college tuition...whatever the need. A credit card and/or a checkbook is provided to the borrower, so as long as the borrower remains within the limits of credit extended, he or she can write the checks however needed.

Home LoanHELOCs are secured loans, and as such, the interest may be lower than other types of loans. This makes them a good option for paying off high-interest credit cards (as long as those balances aren't built up again) or conducting larger projects such as home renovation. One positive aspect to using a loan secured by your home to make home improvements is that the value of your home increases as a result--and yet another reason to make sure that you can make the payments, because if you default, the bank may end up with your beautifully remodeled home. Another benefit to the HELOC is that borrowers often receive tax credits on the interest paid.

A HELOC isn't appropriate for every person or for every situation. They're best for larger needs or projects. Personal loans or other options may be best for smaller loans, such as those below five thousand pounds. As with mortgages, rates and terms can vary depending on the borrower's credit history, the amount of the loan, and the length of the loan. These types of loans are typically long term, and are offered in two forms: Lump sum or credit lines. With a lump sum loan, the whole amount of the loan is granted to the borrower with fixed payments over the life of the loan. A credit line offers the borrower a total amount of funds available, which the borrower uses as needed. This type of loan is usually used through checks specifically drawn from the credit line. Payments on this type of loan can vary depending on how much of the credit is used. Borrowers only pay interest on the amount used.

When considering a home equity line of credit, a careful review of your finances is in order. Remember, your home is used as collateral on this type of loan, so it's imperative that you are able to make the payments lest you risk losing your home. Credit scores are also important, as a better score will go a long way toward a better rate. Moreover, if you opt for a line of credit rather than a lump sum, be sure to determine what the highest possible monthly payment could be and calculate from there.

 

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