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How Will You Repay Your Home Equity Line of Credit?
by Joe Taylor, Jr.
CMR Columnist
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The most important question to ask yourself before obtaining a home equity line of credit is whether you can afford the payments, both now and ten years down the road.
The Pros and Cons of a Home Equity Line of Credit
Home equity lines can be enticing, because you gain access to a large amount of money. Even better, you only have to pay back the interest or a small percentage of the principal for the first ten or fifteen years.
On one hand, a HELOC can get you through a tough financial time, like an illness or a layoff. Without discipline, though, you could wind up with a huge interest payment at the back end of your term.
Even in hot real estate market like California, you can no longer count on appreciating home values to cover the cost of your HELOC. Calculate your payments using a mortgage calculator before you sign any deals.
Two Options for Paying Off Your Home Equity Line of Credit
You can eliminate a ballooning line of credit with home mortgage refinancing. When you refinance your overall mortgage, you can cash out the amount of money you'll need to pay off your home equity line.
For a less extreme solution, investigate home equity loan refinancing, such as taking out a second mortgage to pay off the principle of your home equity line. You'll also want to consider whether you plan to sell your house in the near future, as you'll be required to pay off your credit line upon the sale.
Making good decisions now about how you'll repay your home equity line will keep it from becoming an insurmountable debt.
Sources:
Chicago Tribune
Federal Trade Commission
About the Author
Joe Taylor, Jr. coaches beginning mortgage brokers to provide better customer service and to understand creative financing opportunities.
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