The Loan Is Called A Home Equity Line Of Credit

Category: Finance.

Debt is a success killer. As a general rule, debt is something you should avoid whenever possible.

It prevents you from reaching your goals. There are exceptions to the rule. One of the exceptions is a loan that can actually help you reach your goals faster. But you have to be very careful. Of course, this same loan can also cause tremendous debt problems. It is essentially a loan you take on the value of your home that's paid off.

The loan is called a home equity line of credit. So, if you owe$ 100, 000 on a$ 150, a bank will, 000 home let you take out a line of credit on some percentage of that$ 50, 000 you have in equity. The original purpose of these loans was to make improvements or additions to your home. The money can be used for just about anything, but that's where most people get in trouble. In recent years, people have used, though their lines of credit to buy cars, and vacations, boats. Unlike a conventional car or boat loan, which is usually three to five years, a line of equity's monthly payment is usually just a minimum payment, much like a credit card. What's wrong with that?

The longer they can keep you in debt, the more money they make off of you. Because most people pay only the minimum payment, it's conceivable- - and probable- - that you' ll be paying off the car or boat many years after you' ve sold it. So you' re going to pay a lot more in interest than you would with a traditional loan. Second, if you default on the loan, you don' t lose your car or boat. But, if you use the equity line of credit to build value in your home, it can be a valuable tool. You lose your house. Remodeling a kitchen or a bathroom, building an addition or finishing a basement can pay off big time when you sell the house.

And when the rates go up, so do your payments. Unfortunately, most of these loans carry variable interest rates. This can be a problem for budgeting and it can cause hardship if the rates go up fast. I suspect that more banks will follow suit. The good news, is that two, though large banks Wells Fargo and Bank of America are now offering fixed- rate home equity lines. The current weakness in the housing industry has also hit the mortgage business.

And this is definitely more appealing. As a result, they' re looking for ways to make their products more appealing. At this point, you can only fix the rate on a portion of your loan. But I think that portion will grow as the product grows in popularity.