HELOC (Home Equity Lines of Credit) can have a fixed or variable rate. A variable rate HELOC will usually start with a low interest rate, but after the initial period is over, the rate can fluctuate and become much higher. A fixed rate is usually higher than that of an introductory variable rate, but it will remain constant. Variable rates tend to benefit people who do not intend to stay in a home for a very long time, while people who are not planning to move for 15 or 20 years will usually gain more from having a fixed rate.
“How much can I borrow?”
A HELOC will sometimes allow a person to borrow up to 100 percent of a home’s value. However, different states have different limits, and as with all loans, a person’s credit history and overall financial situation will affect how much he can borrow. Tapping into home equity allows people to get money out of their homes. That money can be used for home improvements, debt consolidation, or any other outstanding obligations that a person might have.
Dangers of Applying for HELOC
A number of Americans who establish home equity lines of credit each year cannot actually afford them. People are approved for a loan, but they are unable to meet monthly payments. Falling behind on any loan can make things difficult for a person by damaging his credit and by causing him to fall deeper into debt. However, getting behind when home equity is involved can be much worse, because the borrower’s home is actually used as collateral. Defaulting can lead to foreclosure and the loss of the house. Too often, people see home equity as a means to help them with a variety of financial problems. While equity can free up money in the short-term, it is important to consider long-term implications. Due to the risks involved, home equity lines of credit are not for everyone. However, for people who are willing to work at improving their financial situations, getting a home equity line of credit can help them gather the necessary capital to make investments that can raise them out of their current difficulties. It is important to assess your own means of paying off a HELOC loan.