No matter how carefully we prepare for “the future,” it’s always a mystery. It can hold adventure, and pleasant surprises. Though the future can also throw little bumps into the road like fiscal hardships or emergency situations – which may leave you looking for a little help paying the bills or filling in financial gaps from time to time down the road.
From payday loans to credit cards, there are tons of funding options to explore. However these options tend to come at a high price because of steep interest rates and fees. If you’re looking for a more economical loan option, you may want to consider an equity line of credit card. An equity line of credit card, similar to a personal line of credit, can be a great budget-friendly solution, and can even be put into place as a safety net so that you’re ready for any surprise the future has secretly prepared for you.
An equity line of credit card works (kind of) like a regular credit card, but is backed by the equity or value you’ve invested in your home. You have the freedom to use the funds available whenever it suits you best and like a credit card, as long as you draw on the funds in your line of credit, you will have a monthly minimum payment due, which will be outlined with a summary of interest and fees. The advantage that the equity line of credit card has over a regular credit card is that the interest rate is almost always lower because it’s backed by (or secured by) the equity of your home.
Lines of credit fall into two general types:
- Unsecured: An unsecured line of credit isn’t backed by collateral, which makes it a little difficult to apply for, and means that higher interest rates will be applied to your account in order to cover the higher risk factor.
- Secured: A secured line of credit is backed by collateral. This can be your vehicle, your boat – or other valuable assets, like your home. An equity secured line of credit comes with a much lower interest rate because with collateral behind it, it presents less risk to the lender.
If you think an equity secured line of credit is the right choice for you, there are a couple of ways to explore your options in obtaining one. A secured personal LOC can be attached to your property. As mentioned, the collateral attached to this loan (the collateral being your property) ensures that the interest and fees will be lower. You’re free to use your secured personal LOC however you wish: but since your assets are held as collateral, they may be seized if you can’t pay off your balance in time.
A second option is a secured home equity line of credit card (HELOC) which allows you to access funds for home improvement projects, repairs, and emergency fixes as well, but with the convenience of using a credit card to make a withdrawal. Your equity secured line of credit card, looks and functions just like a regular credit card but with the parameters of a line of credit as mentioned above. Just like a LOC a HELOC is backed by the value of your home, which is why this type of line of credit is always considered secured and tends to have very low interest rates – because of the diminished risk to the lender. In addition to lower interest rates, the convenience of using a credit card to make a withdrawal when you need to lean on your equity, makes it user friendly and a better option than high interest credit cards. If you would like to learn more or apply for a HELOC, I can help you do so as your mortgage lender. Just give me a call, and we’ll setup an appointment to take a look at your options, to see what makes the most sense for you specifically.
No matter which type you use, an equity secured line of credit can be a big help down the road if you have to face any kind of financial adversity. In times of financial stress, you can rest easy knowing that a safety net is there for you, and though it might take you a little time to pay it off, it won’t have as much of an effect on your overall bottom line in comparison to a high interest credit card which leaves you running on a forever payment treadmill. Life is an adventure, and you never know what the future has in store for you. Being prepared is your best defence.