A homeowner's home equity line of credit is one of the most useful financial tools they can have. A line of credit is a type of loan that is always available. It lets a homeowner borrow money in case of an emergency, like losing their job or getting sick. It can also be used to pay for a lot of different things, but home improvements are probably the most common use. The line of credit is more flexible than a traditional home equity loan, which has a fixed amount of money to be paid back on a set schedule. Once the loan is approved, it is up to the borrower to decide when and how much to borrow. The schedule for making payments is also more flexible, more like a credit card bill than a mortgage payment.
The variable interest rate of a line of credit is not as good as the fixed interest rate of a home equity loan. With a line of credit, the interest rate can change over time and go up and down with the financial market. If a borrower has a big account balance and market interest rates go up, the amount owed will also go up. Rates have been going up steadily for the past two years, so many people may be wondering if they should keep their home equity line of credit.
It could be or it might not be, depending on the situation of the borrower. If the credit line has little or no outstanding balance and the reason you have it is to have a source of emergency funds, it makes perfect sense to keep the account. It's there if you need it, and if you don't use it much, rising interest rates won't change much. On the other hand, if the account was opened to pay for a large home improvement project that costs tens of thousands of dollars, the borrower would be much better off taking out a traditional home equity loan with a fixed interest rate and repayment schedule.
Some people will care more about the rising interest rates and the bigger monthly payments that come with them than about how convenient it is to have a line of credit. For others, the most important thing is to feel safe knowing that they can get emergency cash whenever they need it. In the end, it all depends on what each person needs. Since interest rates are still pretty low compared to the past, most people who borrow against their home equity will be fine no matter what they choose.
