Should I Get a Line of Credit?
Ever heard of a reverse mortgage?
That’s essentially what a line of credit (LOC) or credit loan is. An LOC allows you to tap into your home’s equity when necessary, only paying interest on the amount you use.
Let’s look at how a line of credit works and whether or not taking one out is a smart move for you.
Do You Qualify For a Line of Credit?
As long as you have a decent amount of equity built up in your home, you may very well be in a position to enjoy a hefty line of credit. Just keep in mind that the more credit you take out, the longer it will take to pay off your home. If you don’t have any time constraints in terms of owning your property, then it might not be a bad idea to take advantage of the accrued equity.
Best of all, if you have plans to enhance the value of your property, it only makes sense to take out a line of credit to fund the improvements. This can result in a positive feedback cycle that helps you make your home more marketable while increasing equity and paying off the mortgage faster.
To find out whether you really qualify, it’s recommended to consult an experienced finance broker (which won’t cost you anything) who will submit an application to your bank, much like you would for any other home loan. They’ll talk with you to see if you meet their criteria.
Benefits of a Line of Credit
One of the biggest attractions to taking out an LOC is that you have a higher limit than what a credit card would offer. This is because you’re using your property as a guarantee to back the loan, which is less of a risk to your bank.
Lots of homeowners choose to take out a line of credit because it’s easy to access and flexible to pay off. You can make repayments whenever you want, lowering the amount of interest you’ll pay over time.
What is an LOC good for?
– Boosting retirement funds
– Making renovations and repairs to your home
– Taking a holiday
– Paying off debt
– Supplying funds in an emergency
Drawbacks of a Line of Credit
While taking out credit on your home equity sounds like a fast-cash option, it’s not wise to do so impulsively. The interest you’ll pay out is typically higher than other home loan options. Additionally, your equity and even your home could be at risk if you don’t strictly discipline yourself to pay back what you take out.
Before jumping into the deep end of a line of credit, talk to someone who understands the finance market. The team Funding Options will be happy to sit down with you to compare the figures, at no cost to you, and find the best financial solution. Contact us now.
– Dom Cassisi, Managing Director