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Why and when to tap into home equity

Home equity lines of credit

Advantages:

  • Flexibility: A borrower can access money repeatedly and in varying amounts, as needed.
  • Low maintenance cost: Once open, it operates like a credit card in terms of annual fees.
  • Can carry person through tough times: After a job loss, a homeowner can still borrow from the home equity line to span the gap until the next job.
  • Rates: Generally it carries a lower rate than a home equity loan, and will often have a low introductory rate for a certain period of time.

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Some good uses:

  • A college education: For a borrower who has children at staggered ages and will need different amounts of tuition money at different times. A homeowner can get cash for the first amount, pay down the balance in time for the next child, then borrow again without having to take out and close on yet another loan.
  • Unexpected home repairs: Before a sale, a potential buyer might require that work be completed.
  • Home equity loans

    Advantages:

    • Fixed payments: A borrower knows what the monthly payments will be for the life of the loan.
    • Fixed rate: Most loans carry a fixed interest rate rather than a variable rate, which is standard for home equity lines.


    Some good uses:

    • Debt consolidation: Eliminating higher-rate debt, such as that on multiple credit cards. Transferring the balances to a home equity loan can produce huge savings, and a borrower also avoids the temptation that a home equity line presents to keep running up balances.
    • Home improvements: If a homeowner knows the exact cost, for example, of adding a room in terms of material and labor, then getting a fixed amount makes sense.

    Homeowners can compare rates and lenders using Bankrate's home equity search engine.


    Most-common uses of home equity borrowing
    HELOC
    40%
    Debt consolidation
    44%
    23%
    Home improvement
    25%
    7%
    Automobile
    7%
    6%
    Education
    4%
    6%
    Major purchase
    2%
    3%
    Investment
    2%
    2%
    Household expenditures
    2%
    2%
    Business expense
    1%
    1%
    Medical
    1%
    1%
    Vacation
    1%
    9%
    Other, don't know
    11%

     

     
    -- Updated: July 17, 2002
       

     

     
     

     

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    Home Equity
    Compare today's rates
    NATIONAL OVERNIGHT AVERAGES
    $30K HELOC 4.67%
    $50K HELOC 4.04%
    $30K Home equity loan 5.00%
    Rates may include points



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