A Home Equity Line of Credit Can Be Your Budgeting Tool

by Richard Barrington
LoanPage.com Columnist

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Most homeowners realize that as they pay down their mortgage, their home equity becomes a valuable asset which can be used as loan collateral. In addition, this asset can be used to obtain an important budgeting tool known as a home equity line of credit. As with any mortgage, home equity loans use your home as collateral. This makes effective budget management especially important.

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How a Home Equity Line of Credit Works

Home equity is the difference between the current value of your home and the balance you have remaining on your mortgage. You could borrow against some or all of this via a home equity loan or you could use it to secure a home equity line of credit.

With a home equity line of credit you only pay one set of closing costs and can access the credit on multiple occasions. In addition, you only pay interest on the outstanding credit balance--so much of the cost is only incurred as needed.

Benefits of a Home Equity Line of Credit

A home equity line of credit is an effective budgeting tool for several reasons:

» It allows homeowners to smooth out extraordinary expenses for things like repairs and home improvements.
» Since homeowners typically encounter a series of different projects over the years, a home equity line of credit allows them to pay one set of closing costs and then access the credit multiple times. This should be cheaper than taking out a series of different home equity loans and paying separate closing costs each time.
» With this incremental approach to borrowing, homeowners can make sure they are able to pay off one project before taking on another, as opposed to taking on a large debt to cover several projects all at once.

About the Author:
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

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