One of the many loans available on the market is the home equity line of credit. This type of loan maybe suitable for some people where they have built up a substantial amount of equity in their home and now they need some extra cash, that had not been budgeted for previously. Although you may have a lot of equity built into your home, ensure that you only borrow what is absolutely necessary, otherwise all that hard work you have done in the preceding years in building up the home equity will have been wasted.
Home Equity Line of Credit is often known as HELOC. This type of loan allows you to borrow up to a pre-approved amount. The pre-approved amount is usually a revolving line of credit, which means as you pay off some of the outstanding balance, this amount is then available again to be borrowed in the future, if required. The lender will access your credit file and if the credit file shows a good credit history they will usually approve a ongoing line of credit up to 80% of the equity you have built up in your home.
The lender may offer you different payments options, the variable interest rates should have a cap documented in the loan documents. The different payment options are usually the repayment of interest only or repayment of principal and interest. At any one time the payment amount is based on what you have actually borrowed, not on the line of credit available to you. One of the issues that you may face if you select a interest only repayment, is that the outstanding principal amount that you have borrowed needs to be repaid at some stage. If the loan is on a fixed term then the principal needs to be paid before the loan term expires. This has caught quite a few people out over the years and this could cause a significant financial issue, if it happens to you and you cannot afford to repay the principle.
