The Basics Of HELOC Purchases And Expenses

Sept. 13, 2011 - PRLog -- A HELOC can be used in much the same way as a credit card, except that you should not withdraw cash for everyday expenses or things like designer clothes, which you will be paying for a decade after buying them.

HELOC (http://www.canadabanks.net/default.aspx?article=HELOC+-+Home+Equity+Line+of+Credit) is a special type of credit line, guaranteed by the equity the customer has in his home. The loan's full amount is not advanced, with the creditor establishing a maximum amount that the borrower can withdraw. This is the main difference between regular loans and HELOCs.

To get a HELOC, you should first be approved for one. Once this is a fact, you should become familiar with two periods - the draw and repayment periods. During the first, you can withdraw any amount up to the limit whenever you want. Draw periods last up to 15 years, during which time all you pay is the interest. You can also repay the amount, in part or in full, without being charged any penalties in this term. At the end of this period you either pay the loan back in full or enter the repayment period. If you are required to pay the loan in full, you may have to refinance your home. If not, you start paying back both the loan principal and the interest. The interest you pay will be computed on a daily basis. In terms of Heloc rates, the rate is adjustable.

With that in mind, you must be aware that HELOCs are risky. It is the interest rate fluctuations that carry the greatest risk, and they affect mortgage payments. In addition, you will have to pay an annual fee even if you do not use the line of credit.

Loans like Heloc (http://www.canadabanks.net/Loans.aspx) should be used for consolidating high-interest credit card debt, making home improvements, paying tuition and medical bills and emergencies. Borrowers who have amassed debt on high interest credit cards may want to move this debt into home equity credit line as to lower the total amount and monthly payments.

Homeowners with equity in their homes that is sufficient to pay back their mortgage can use a HELOC to this purpose. Some owners consider it a better option than refinancing because lines of credit are not normally associated with closing costs. To take advantage of a HELOC and pay off your mortgage, you need to have a very good credit score. Some persons also use home equity lines of credit for down payment when planning to purchase a new property. To be able to do this, you need to have a considerable amount of equity in your house.

You can increase the value of your home if you make repairs and improvements and charge them to the credit line. These are limited to basic repairs and are determined by your location and the real estate market, and do not include luxurious items such as a Jacuzzi.

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