HELOCs, or home equity lines of credit, are a good alternative to payday loans. However, they can be expensive to get. They have an adjustable rate and there is a risk of losing your home. Therefore, it’s important to know exactly what you’re getting into.
While there are many similarities between HELOCs and credit cards, they’re much more complicated. The rate of interest is tied to a prime rate, which can fluctuate monthly. A HELOC can have an average interest rate between 7 and 8%, but it’s possible to find one with a lower interest rate. In general, the more your credit score, the lower the rate.
Another advantage of a HELOC is the fact that they allow you to borrow more than your home’s value. This can give you access to large amounts of money for a long period of time. You can also use it to consolidate debt. If you have a credit card with a high interest rate, a HELOC can help clear your account. It can also provide you with the security of a bank account.
While a HELOC may be the best way to get a loan, it can be a bad idea for some people. For example, if your income is unstable or you’re not sure if you’ll be employed in the future, a HELOC might not be for you.
You’ll also need to consider the draw period. When you apply for a HELOC, you’ll have to prove that you’re in a good position to pay off the loan. During the draw period, you’ll only have to make interest payments. After the draw period ends, you’ll have to begin repaying the principal. Generally, a repayment period will last about ten to twenty years, but it can be as short as seven years.
Besides paying off the loan during the draw period, you’ll also want to start making additional payments. These additional payments will reduce your loan balance at the end of the draw period, and lower your monthly payments. Many lenders will also waive closing costs. By making these extra payments, you’ll be using your HELOC as a cash-flow management tool.
Interest only payments are typically only available during the draw period, and they can make the HELOC a more affordable option for the first few years of the loan. But, you should be aware that paying interest only for a long period of time will leave you with a larger balance than if you had repaid the loan.
You should also be careful of the lifetime cap. Most loans have a cap. That means you’ll only be allowed to borrow a certain amount of money for the life of the loan. There are some special programs for medical expenses and home improvements that might have restrictions on how you use the loan.
Although you’ll have to consider all of these options before you decide on a HELOC, it’s a great way to get a loan. If you need to borrow more than your home’s value, you might be better off with a personal loan. Personal loans can be found from a bank, a credit union, or an online lender.