Home Equity Loans and Emergencies

Home equity loans and rainy days

It’s tough enough making ends meet these days without having to worry about emergencies. Most Americans do a poor job of saving money, so there is little in the bank to take care of disasters, like fire, floor, or loss of job. In most cases, people just hope that bad things won’t happen to them and hope for the best if they do. There’s a better solution that smart consumers use to sleep well at night - the home equity line of credit. Home equity loans are good for consolidating debt, but they are also a good tool to have around in case something goes wrong.

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What would you do if a flood took your house away? If you had an accident and couldn’t work for a year? Most people don’t give these things apart. The fortunate ones save a lot of money, but most Americans can’t afford to do that. One smart move that can help is a home equity line of credit. A credit line is similar to a home equity loan in that it borrows against the portion of your house for which you have paid. The difference is that a home equity loan is a fixed-payment installment loan. You pay it back by paying so many dollars per month until it is paid off. A line of credit works like a credit card. You have an established limit and you may borrow against it up to that limit. When paying it back, you pay back at least an established minimum each month and you may add to that as you can.

The benefit of a line of credit is that you need not borrow against it unless necessary. That’s how it makes a great disaster tool.. It’s “ready money” that you can use only if you need it. Unlike a regular home equity loan, you don’t have to take the money out right away. You can simply apply for it, sign the paperwork, and then rest assured that you will have access to funds should your life suddenly turn sour.

 

It is easy to take out a line of credit. Most any home lender can provide you with one. The process is quite streamlined and easier than applying for a first mortgage.  A home appraisal and some fees will be necessary, but other than that, the process is fairly simple. Your lender will also run a check on your credit to see if your credit score is healthy. The interest rates will be slightly higher than for a first mortgage and the rate will be variable. Keep in mind, however, that you don’t have to make any payments unless you draw on the funds, which you can usually do by means of either a checkbook or a debit card.

You never know when an earthquake, fire, famine or other disaster will occur. There’s no point in worrying about that, but there is plenty of sense in preparing for an emergency. One of the wisest moves you can make is to prepare ahead of time by applying for a home equity line of credit.  You want to do it now, while things are going well, rather than wait until a problem occurs. Don’t wait to apply; you won’t be able to get a loan after you lose your job, for instance. This is a case where it pays to be proactive.

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