If you want extra money to make home repairs, to go on vacation or to buy a new vehicle, then you might be wondering about the options that are available to you. Although many people opt for a traditional loan, doing so might not be the best choice. Before you make a final decision, it’s vital you take as many factors as possible into consideration. Depending on your situation, you might want to consider getting a home equity line of credit, or HELOC.

Doing so can provide you with many benefits, and overlooking them would be a mistake. The following information will help you learn about getting a HELOC so that you can decide if it’s the right path for you.

HELOC Defined

Before you can decide if getting a HELOC is a wise move, you need to understand what it is and how it works. If you owe less on your home than it’s worth, then equity refers to the difference. For example, if you own a home that is worth $200,000 and have paid off $100,000, then the equity of your home is $100,000. If you want to borrow money from the bank, you can use the equity as collateral. Some homeowners opt for this method over the alternatives, and it can grant them access to funds that would have been unavailable otherwise.

Home Equity Line of Credit Rates

Borrowing money without taking the time to learn about home equity line of credit rates would be a mistake. People who do so often find themselves paying more interest than they had suspected, and you don’t want to make the same error. Fixed home equity line rates exist, but they are not as common as variable rates. By the time that you repay the loan, you will still pay the same amount of interest with both options.

If you choose a variable rate, your monthly payments will be small at first, but they will increase over time. If you get a variable rate, ensure that you fully understand the terms before you sign the paperwork. Inability to make your final payment could result from not learning about the conditions of the agreement.

Benefits

If you are like other homeowners, you are going to be impressed when you learn about the benefits that you can receive when you borrow against your equity. Because you are using your equity as collateral, you won’t need to have a perfect score to be approved. Bypassing the financial report is fantastic for people who have poor scores, and they will have the opportunity to improve their credit report by making their payments on time.

Also, you will have the option to make interest-only payments when needed, and this feature is helpful to people who are having financial problems. If you have a lot of bills to pay, then making an interest-only payment can prevent you from falling behind. When you get your financial situation under control, you can start paying off the principal balance. You will have even more control of your finances, and you can repay your balance at a time that works for you.

Legal Safeguard

For some individuals, borrowing money is a scary process because they don’t want banks to deceive them. Although cases of unfair lending practices have been reported, they are rare. In fact, the law protects you from hidden fees. If you decide to use your home’s equity to borrow money, the Truth in Lending Act is your biggest asset when it comes to protecting yourself. This law requires all lenders to disclose the terms of each loan to their clients before finalizing the deal, but it’s up to you to read the agreement if you don’t want to encounter any surprises.

Although home equity line rates can vary, you will learn everything that you need to know when you read the paperwork. You will also discover if your lender wants you to make a balloon payment before you close your account. Consumers who overlook their repayment terms will often get stuck paying balloon payments that are higher than they had expected. You can avoid this situation by taking advantage of the Truth in Lending Act, and you will be glad that you did.

Final Thoughts

Although it’s not the right choice for everyone, securing an account with your home’s equity could be the right path for you. People often find the idea of making interest-only payments appealing, but a HELOC is also nice for those who want to make up for mistakes that are in their financial reports. Before you go to the bank, you will need to get your home appraised to determine its value, which does not need to be difficult. Unexpected bills, car repairs and medical emergencies can drain your bank account, but the equity of your home might be able to save you from a disaster.