What Is a Home Equity Line of Credit?
Filed Under (Daily Posts) by Cynthia on Sep 18, 2008 9:50 am
Tagged Under : Home
I am thinking of redoing our loan situation. We owe about $26,000 on our mortgage at 5.25% interest, and I have the new loan for the minivan at 6.49% interest, 7 years, long term so the payment amount would be super low.
Anyhow… if I get a Home Equity Line of Credit at 4.5%… wouldn’t that be better? I can pay off the other two, and we’d probably have a lower payment while the husband isn’t working.
Are there any catches to this? I talked to a guy at the Credit Union, he said there are no closing costs or fees, so that’s good.
From what I understand, it’s basically a line of credit where you have like a credit card, and you just use the equity on your house to pay for things. And you can have it for a certain amount of time, like 10 years, and then at the end you have to reapply or something.
However it’s a variable rate, that 4.5%… so it could (will) go up. But maybe we’ll have everything paid off by then. I guess that’s just a gamble. I don’t like variable, but maybe we can risk it. And we can refinance to a fixed if it goes up too much.
Hrm.. things to think about. Just like getting acne treatments. What to do, what to do? I’ll talk to the husband first, and see what he thinks!
On this day..
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I know it can sound really tempting to switch to the home equity loan. But in today’s economy I wouldn’t trust a variable interest rate. Another consideration is that the interest may or may not be deductible. The part used to pay off the house would be, but maybe not the portion related to paying off the van. It might be wise to check with a tax man before you decide. I agree that getting it all under one loan would be great, but I’m not very risk tolerable and would go the fixed rate. I guess you need to figure out how much risk you’re willing to go with.
BTW, I’m glad to hear you’re getting more comfortable behind the wheel again!
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Hi Clara. It’d be a equity line of credit, not just a home equity loan. A bit different… but we’d treat it the same. And that interest rate is so tempting!
hm, interesting. I myself just checked into this w/Granite C/U as I really want granite kitchen coutertops, but then I’d need a new stove, sink, oven, etc. anyways ! I would not go w/the ARM either. I know they have 5% home improve loans and yeah, they are like a line of credit and you can do w/it what you want. However, I imagine you would need to show some type of proof that it is a home improv loan. Maybe you can borrow M and Ds receits from their kitchen makeover…?
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Don’t go variable. It could nip you in the butt. It is however deductable. We have done it before with cars adn land we bought, it doens’t matter what you use the money for. If it is on the house it is deductable.
Heya Astrid.. I was thinking if the interest goes up, we could just get a fixed loan. Hrm…
If you do that, make sure you get a loan that you can get out of without a penalty. They are usually for a certain number of years.
Also if the variable goes up the fixed rates go up, too.
Heya Astrid.. yeah, not liking the idea of the variable. I’m rethinking my options…
HI Cyn.
I would not go variable. The market is very unstable and that 4.5% can easily go to 15% plus quickly. I would keep the house payment as is and pay the vehicle first as quick as possible if that only debt. Please listen to http://www.daveramsey.com/. At least listen to him a week before you make your decision with your husband. He on 570 AM from 7-10 pm. If you can listen to him tonight. I love his Friday shows because he lets people call in saying there debt free. To me he gives the best advice on how to handle money situations.
Hey Paul… yeah, I’m rethinking the variable. Maybe I’ll just refinance the van, I can get 4.75% from Mountain America. And leave the house alone. Though one CU has a mortgage loan of 5% fixed. I’ll look into that too.
Too many options! Thanks for your comments.
Cyn
I forgot to add you only pay off debts if you have emergency fun first. I would say this especially for you if husband you’re is out of work.
We don’t have an emergency fund.. but we have no other debt other than the house, and now this van. Our credit cards are zero so that’s good. We really want to get that debt paid off first! It would be good to have an emergency fund…