I hate to pitch an idea for just the sake of an argument, but if you are employed right now, then having an equity line of credit available to you can save you a lot of headaches down the road.
Normally, I wouldn’t suggest that most homeowners get an equity line of credit as it is debt that is drawn down against the value of your home, but these are not normal times. The risk of losing one’s job has been elevated over the past several months and will remain high for many people at least through the first half of this year. Some analysts think that millions more Americans will lose their jobs before summer arrives, putting additional pressure on the economy.
Obtaining a home equity line of credit right now is wise and for the following reasons:
- If you find yourself in a financial bind many months down the line and are out of work, then having a credit line available will allow you to pay for life’s emergencies. A broken down furnace, leaky roof, medical emergency or some other problem could limit your options. With an equity line already in place, funds can be tapped to cover these expenses. If you wait until you are out of work to apply for credit, in all likelihood you will be turned down.
- Obtaining a credit line now makes sense for the simple reason that interest rates are quite low. Likely, you’ll have an adjustable rate, but that rate will be much lower than a credit card or what a financing company might charge you for your new furnace.
- Whether you use it or not, you won’t lose it. With an equity line of credit, you can tap these funds when you want and use it as needed. If you never use your line, you won’t be charged for having the it available to you. Once you draw down (borrow) from your line of credit then interest will begin to accrue and you’ll be responsible for a monthly payment.
Keep in mind that an equity line of credit is debt that is secured by your home. Like a mortgage, you are responsible for making regular payments when you draw down your line. If you sell your home and have a balance on your line, the mortgage is paid off first, followed by your equity line. Thus, the money you have left over post sale will be lowered accordingly.
My equity line of credit has been active for over a year now and I’m glad that my wife and I decided to take one out. Using it wisely, we have it in place to cover life’s emergencies as well as to fund several projects around our house.
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