In these recessionary times, financial insecurity is a real and serious cause of concern. Some folks who would never have dreamed of being in severe financial straits are finding themselves scrambling just to pay bills and keep a roof over their heads. Add unemployment to the scenario and you have a real nightmare including losing a home. If an unemployed person desperately needs an infusion of cash to stay afloat, many lenders are not exactly jumping at the opportunity to help them out and lend them the cash they need. However, some good news is in the offing for the unemployed homeowner. There is now available a financial instrument know as the Home Equity Line of Credit or HELOC.
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HELOC Basics for the Unemployed Homeowner
Basically, a Home Equity Line of Credit is a loan that uses the homeowners property, and whatever equity it holds, as collateral to secure the loan. In a way it resembles a traditional secured loan that holds property as collateral, but it allows the homeowner to draw from a larger reservoir of so-called stored funding.
Not a Lump Sum
Depending on the worth of the property and the equity that is part of its value, the lender will offer a line of credit upon which the homeowner can draw as the need arises. More traditional loans just present a lump some and that is the end of it. To make it easier to understand, the cash would be available much as a credit card is available to cover purchases and expenses up to a certain limit. A good aspect is that a homeowner draws only what is needed when it is needed. This cuts interest costs and does not obligate the owner as a lump sum would. When requesting a lump sum, the borrower would feel compelled to ask for a bit more than they calculated just to cover any eventuality. HELOC negates that necessity.
HELOC Offers Interest Rate Flexibility
Payments start immediately after the line of credit is granted, but only on the interest. Also, the interest charged reflects only the amount that has actually been used, not on the whole line of credit. Another good aspect of HELOC is that while interest rates may fluctuate to reflect financial market trends, the interest is tax deductible much as a standard mortgage. Keep in mind though that there is an allowance limit that can be deducted, that is up until the first $100,000 is borrowed.
An Important Consideration
Unemployed homeowners should be aware that drawing on their home equity increases the principle amount owed on their home. Thus, the equity in the home of course decreases. If their home is sold before the loan is repaid, they will have less, if any, profit to take away from the sale.
HELOC Can Alleviate Short-Term Financial Woes
The Home Equity Line of Credit is a expedient way to tap the stored funds in a home or similar property that had not been available previously. Reliable, simple, and secure, it can be a life line to harvest the cash needed to make sticky financial situations less so. And all it takes is doing a little homework and working with a lender to get the line of credit granted.
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