Benefits:
The biggest benefit of home equity line of credit is that, it
is an easy source of cash. If you have considerable equity in your home, you
can tap that equity and fulfill your monetary needs without much trouble.
Furthermore, though the interest rate on HELOC is more compared to that of
first mortgages, it is still much less than the interests on other consumer
loans and credit cards. Additionally, the interest is tax deductible. Hence, it
is advisable to consolidate your debt with the home loan to enjoy the manifold
benefits like lower interest rate, extended repayment term, and tax benefits
and many more. It is the best way to arrange funds for short term, recurring
costs such as payment of quarterly school or college fee.
Pitfalls:
One of the major drawbacks of home equity line of credit is
the variable interest rate. Though it is beneficial in some way, it is
disadvantageous as well. For instance, if the interest rate at the time of
borrowing was less and suddenly the market rate goes up, you will have to pay
more. This bears more risk, since you have to be ready for both ups and downs.
Another pitfall is that, if you fail to repay the complete loan amount within
the agreed time interval, the lender can foreclose your property and put it for
sale to get his/her money back. Therefore, if you do not want to lose your
property, make sure that you borrow for the right reasons.
It is recommended to do a complete research for finding a
competent lender. Consulting a knowledgeable broker will introduce to more
better and reliable options, since they have inbuilt contacts with potential
lenders who are keen to offer homeowners with such loans and that too at very
affordable rates. Moreover, conducting a careful review of your financial
background before borrowing the money will help you in avoiding the pitfalls.
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