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Equity Line of Credit

What is a Home Equity Line of Credit (HELOC)

Home equity lines of credit are different than a home equity loan (or second mortgage. They are a revolving source of money based upon a limit, that you can access as you choose. It works almost the same as a credit card except the funds are borrowed against the equity in your home. In most cases, the interest is tax deductible and most Florida home equity lines have very few, if any closing costs. Most banks and home lenders offer a number of different ways to access those funds, whether it’s through an online banking, writing a check, or using a card integrated with an account.

When you access a line of credit, the lender will only charge you interest for monies you are using, not the untapped portion. For this reason, many homeowners like to establish a line of credit as an important source of emergency funds. For example, if you and your wife were laid off due to Covid-19, having an equity line of credit already established could go a long way to stabilizing your situation.

Is a Florida Home Equity Line of Credit (HELOC) Right for Me?

Florida equity line of credit loans are more flexible than a second mortgage (or home equity loan). The biggest difference between the two home mortgage products is that the home equity line of credit is available as you need it. On the other hand, a home equity loan is predictable home loan that usually is tied to a home improvement project with a finite set of repayment and interest terms. It is basically the same as the first mortgage in process and fees but holds a subordinate position should a foreclosure occur. HELOC’s offer market condition rates (typically low), no closing costs, no points, and quick access to funds.

What are the Drawbacks of Florida HELOC Loan?

Most would consider that a home equity line of credit (HELOC) is an accessible, flexible, and low-priced way to borrow money. All these assertions can be real if you control your HELOC sensibly. Taking out a HELOC, rather than a home equity loan, means that you are only obligated to pay interest on the amount of your line of credit that you're actually using, rather than on the total money available to you. But if you aren't cautious, a HELOC can turn out to be very costly and get you into financial difficulty. Here are some ways a HELOC can harm you:

  • Increasing Interest Rates Have a Direct Effect on HELOC Monthly Payments
    HELOCs use variable interest rates. The interest rate is based on a benchmark rate, such as the federal fund rate, plus a margin, which is established by the lender. When interest rates rise, your monthly payment will increase too. There is no way to forecast when increases will occur or how significant they will be. In fact, the monthly payment could become too expensive. At the same time, lapsing on HELOC payments will drop your credit score, while growing the interest you owe. The terms and conditions of your HELOC should indicate a maximum potential interest rate. However, if your present interest rate is 5% and the maximum is 18%, that data will not be very soothing.
  • Interest-Only Payments Will Harm You in the Long-Run
    Some Florida equity line of credit loans have an option that permits you to make interest-only payments during the first few years of the loan. Interest-only payments seem great in the short run because they allow you to borrow a lot of money at what looks to be a minimal cost. In the long run, the image is not nearly as pretty. Borrowers face significantly higher monthly payments once the interest-only period ends, and possibly a balloon payment at the end of the loan period. If you don't plan for these surges—or if your economic situation stays the same or deteriorates—you may not be able to make the higher payments.
  • Related Links
    Second Mortgage
    Debt Consolidation

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