Equity Line Of Credit Rates Favor You In The Short Term

2007-03-08 10:33:40

( Financial )



If you have made substantial payments on your house mortgage, you can use this built-up equity to secure a loan at favorable equity line of credit rates. Home equity line of credit assures you that cash will be immediately available, which should certainly help get you over temporary rough spots.

A home equity line of credit gives you the benefits of being flexible, low cost and having tax deductible interest. In contrast, interest paid on credit card debt is not deductible. Still, you should remember that if interest rates rise, your equity line of credit rates will also rise since it is indexed to the prime lending rate. There is a difference between equity line of credit rates and ordinary home equity loan rates: for equity line of credit rates the interest is adjustable, whereas for ordinary equity loan, the rate is fixed.

The other difference is that interest rate in an ordinary equity loan may seem a little high initially in comparison to the prevailing prime lending rate, but works out to be low in the long term. Equity line of credit rates may seem low initially but work out to be higher if the loan is kept for longer periods.

An equity line of credit is, therefore, best used if you want to borrow money for short term needs. One way you can use an equity line of credit is to obtain cash for settling your credit card debts. This will save you a lot of money in interest cost. Conceivably, you can use an equity loan to buy a vehicle, but you should check if the car manufacturer is offering it at zero percent financing.

You may not really need to borrow now. But an equity line of credit can give you some peace of mind, knowing that you have a fallback when unexpected cash needs come up. The time to arrange for the equity line of credit would be now while you still have a job or are otherwise solvent. If things should turn for the worse, it is harder to get approval for a loan if you’re out of a job; or, if you get one approved, the equity line of credit rates may not be as favorable to you anymore.


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