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If you own a home, it seems like lenders today are just begging to throw money your way. Home equity loans and lines of credit are easy to come by, even for those with blemished credit. If you have several high interest credit cards or personal loans, you may wish to consider consolidating them with a home equity loan or line of credit. Assuming your home has enough equity, a lender will place a second mortgage on the property and give you the money to pay off your higher rate debt. With a home equity loan, you get a fixed amount up front in a lump sum and pay it back in fixed installments usually over ten, fifteen, or thirty years.
With a home equity line of credit, also called a HELOC, you get a checkbook with a credit line up to the amount authorized by the bank. You pay a monthly amount based on the total amount you've "drawn" or spent up to the available limit. Just like with a credit card, as you pay off your balance, that amount becomes available to be re-drawn or spent. A HELOC has a fixed draw period, usually ten years, in which you can borrow against the credit limit. After that, you must pay the outstanding balance back over a period of up to fifteen years. A HELOC can be a good safety net for emergencies if used wisely. However, both home equity loans and HELOCs put your house on the line. Down the road, if you can't figure out how to pay bills, you could end up on the street. It's not something to be done lightly.
|Jennifer Mathes, Ph.D.|