Home Equity Loans
Equity Loan Info:
Loan or Line?
-HELOCs for Emergencies
-Home Improvement Loans
-Loans vs. Line of Credit
-Downside of Equity Loans
HELOC FOR EMERGENCIES
home equity line of credit is an excellent source of emergency funds for
homeowners that have no money in savings. However, there are a few
problems with utilizing a loan for this purpose. Outlined below are
the more common drawbacks.
Minimum withdrawals required
A home equity line will usually require a minimum withdrawal when
the loan closes. In addition to the closing costs associated with
the loan, the borrower is going to have to deal with
the interest fee of the minimum draw. As a result of prepayment
penalty fees associated with lines of credit, the homeowner is going
to have to invest the money to alleviate the cost of the interest.
Suppose the minimum draw is $20,000, the interest rate is at 6%, and
you can only earn 4% on savings. That is a 2% difference between
what you are paying in interest and what you are earning from the
investment. Although its only a few hundred dollars per year, it
will add up to thousands of dollars after several years.
Don't forget about
closing costs. Suppose these costs totaled
$1,000. Without factoring the
tax impact from equity loan
interest deduction, you have spent $1,000 plus the difference in
interest cost from the minimum withdrawal and your investment. An
emergency fund should cover about three to nine months worth of
living. You need to determine what percentage of the emergency funds
these costs represent.
Home equity loans expire
Another potential issues is not being able to withdraw from the
line after a certain amount of time. If this is the case, you are
going to have to pay off your first line when it expires, and then
take out a new one in order to continue to have emergency funds
Star Loan Services offers a
wide variety home equity loans. We will
help you find a loan with minimal closing costs, interest fees,
prepayments penalties and draw requirements, so that you can obtain
the emergency funds that you need.
In conclusion, utilizing a home equity line for this purpose is
going to take financial discipline. It is not going to be easy for
anyone to not be tempted to use the money for impulse purchases. If
you currently have problems keeping tabs on your finances, then you
probably should not consider utilizing a home equity loan for
emergency reserve funds.
We invite you to
contact us. We will analyze your current situation
and help you determine what your best course of action is. Or, you
can fill out a
free, no obligation request for an equity loan without having
your credit checked.