Home Equity Loans / Line of Credit
Aside from fixed rate loans, home equity loans are also available in lines of credit, which is also available for 15 to 30 years terms.
This home loan product is known by a number of names – it’s also known as a Revolving Line of Credit. This type of loan has become popular due to its flexibility and features.
- It’s a similar concept to having a credit card but much larger in credit limit.
- A Home Equity Loan is a credit facility secured with a first mortgage on a residential property.
- It allows you to withdraw funds up to a set limit (the equity you have in your home) at any time.
- A Home Equity Loan allows you maximum flexibility with your finances. You can use the line of credit to carry out renovations, invest in shares, purchase another investment property or even pay the bills.
Pros and Cons of a Home Equity Loans
Advantages of a Home Equity Loans
- A solution for borrowers who are on track with their own debt reduction program.
- Flexible payment options – Usually interest only, and you only pay for what you use.
- You can choose not to pay any repayments for a period of time, and let your interest capitalise. When you reach your 100% of your limit, interest payments are required.
- The interest that you have to pay on home equity loans is usually tax deductible.
- You can reimburse home equity loans over the length of 15 to 30 years, which is far longer compared to other types of consumer loans.
- You can use the cash in any way you want. There is no need to show the lender how you plan to spend the loan proceeds.
- Lump sum repayments are allowed at any time.
- Better Accessibility – Money is easily accessed by cheque or ATM card linked to the loan.
- Works well in combination with a traditional home loan.
Why would I not want a Home Equity Loan ?
- Attracts higher interest rates than standard variable rate loans.
- For undisciplined or inexperienced borrowers, there is a risk of not reducing the loan. This can become costly and hard to manage