Home Equity Line of Credit
Use Only One Debt Account at the Lowest Interest Rate with a Home Equity Line of Credit
The home equity line of credit, or line of credit with security of mortgage, is a revolving credit offered by most banks. It works the same way as any line of credit and allows the same borrowing-repayment system, but with an interest rate comparable to other mortgage loans.
It is the revolving credit with the lowest cost because you put your home as a security, which is considered a low risk collateral, when correctly valued. To have access to such a credit, a borrower must have accumulated equity on the house, because banks won't lend 100% of the property's value, but rather 75% to 85%.
It is the ideal tool to consolidate all your debt into only one account. When consolidated at the lower interest rate, a bigger portion of your payments will go on the capital, so you will be able to pay all your debt faster. The other advantage is that, when experiencing cash flow problems, you can limit your payment only to the monthly interests.
Moreover, you can borrow again on the capital already paid. No new credit application is needed, which will constantly improve your credit score if payments are made on time. For consumers with renovation and restoration projects on a house, steps will happen more smoothly, since they don't owe any explanations. They can borrow money whenever necessary and reinvest the paid capital on their home, which would allow the residence to gain value.
For someone passing through long period without any income, only to receive a big check every now and then, like freelancers, this type of loan is perfect. They can apply a big payment without penalties when cashing a good amount of money, or limit the payment to the monthly interest when things are slow. It is a very flexible credit.
It is also a very good tool for entrepreneurs, business owners or investors who see a way to borrow at a low cost and invest in their projects, if their company cannot provide any interesting securities for banks. With a low interest rate, it is safer to invest and there is less pressure to turn a big and fast profit from the amount borrowed. For example, if people are borrowing at an interest rate of 4% and the return on investment is 5%, they win. This borrowing capacity is a great leverage for a company when the house is paid in full.
The goal is to stay disciplined and pay more than the monthly interests. Moreover, avoid using this line of credit for purchasing goods and consuming materials that devaluate, it would plunge you into deeper indebtedness. Borrowing to buy depreciating goods won't improve a financial situation; it would be a misuse of a remarquable borrowing tool.