Money tends to easily come into the bank account and just as easily disappear. A home equity line of credit, unlike other forms of revolving credit accounts, is based on the equity you have earned in your home. As the line of credit is used, the repayment is like repaying yourself for the money you have spent.
When applying for a home equity line of credit, the homeowner can choose how much of their home equity they wish to use as the basis for their credit line. If they have $100,000 in home equity, they may only want to use $30,000 for home repairs and debt. This equity will then be linked to a credit line that the homeowner can use for any purpose they see fit as long as they can pay the money back.
Unlike a home equity loan, the line of credit is revolving. This means the money will have to be paid back in addition to the current mortgage payment. Much like a credit card payment, the money owed is not figured into the mortgage payment and recalculated for future payments. Thus, the line of credit is far different from refinancing, per se.
While the one time loan seems to offer a bit of freedom because the money does not have to be repaid, so to speak, when the home equity line of credit is repaid, the money is available again for future purposes.
The home equity line of credit is also a great way to teach financial limitations, especially if you are trying to be more budget minded. Taking out a smaller line of credit will limit the homeowner spending. This means even a larger home repair will need to be completed in smaller bits and pieces. As the money is paid back into the line of credit, the repair can continue. The smaller the home equity line of credit is, the more thrifty the homeowner will need to be with the money spent, but the repayment amount will also be smaller.
Choosing a home equity line of credit over a home equity loan means revolving money and that is a great way to continue improving your property and your debt to income ratio if the money is used to pay off high interest loans and credit card balances. The more you pay off with the line of credit, the better your credit score and financial stability.
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Home equity lines have gotten a lot of folks into trouble. I've seen people that have purchased boats, traveled around the world, done all kinds of fun things, then been unable/unwilling to repay and tried a short sale...effectively making the banks pick up the tab for lavish lifestyles.