Home Equity Loans as Credit Card Alternative


When homeowners are in need of extra money, a few different options may run through their mind in regards of how to obtain it. Homeowners have the option of refinancing their home or take out a home equity loan or a home equity line of credit, or borrowing money off of their credit cards. The important question in this scenario is what option is best for the homeowner’s particular needs, as well as how much equity one has in their home. If you are looking for a way to obtain extra funds for home repair, a family vacation, or are simply in need of extra money in order to handle daily expenses and give yourself a bit of a financial cushion, it is always a good idea to weigh out all options in front of you in order to make an informed decision that will work best to suit your financial goals.

Is a Home Equity Loan Plausible for you?

Home equity loans are a good choice for homeowners with a fair amount of equity in their home. If you have around $200,000 for example, taking out an equity loan of $50,00 or less is definitely plausible, as long as your credit is solid and you can prove that your current income would allow for timely monthly loan payments. Cash out refinancing is also a good idea for homeowners that are looking for a lump sum of cash to cover larger expenses like a home remodel or a new automobile.

However, when it comes to cash out refinancing, it is important to take a good look at your interest rate on your current mortgage. If your interest rate is good, refinancing may raise the rate, so all you would be doing is refinancing your debt at a higher rate. The two options you want to look at as an alternative to refinancing are a home equity loan or a home equity line of credit. Bankrate.com provides an easy to understand worksheet where you can compare these two loans and make the best decision based on your financial needs.

A home equity line of credit, or HELOC, is a loan with a variable rate, and payments are usually interest-only in the beginning. Once the line of credit is paid off, you can easily renew it if need be. Alternatively, home equity loans carry a fixed rate, and typical payments are high enough to allow the borrower to pay off the loan over the course of its term.

Credit card loans should almost always be the last possible option for homeowners, as they carry a high interest rate that nine times out of ten is always higher than a home equity loan or HELOC. If you do not have a lot of equity in your home or if you have already refinanced, your only option may be a credit card loan, but it is important to note that defaulting on even one payment can result in your interest rate being raised.

Responsible Borrowing & Financial Security

In the aftermath of the economic crisis, many people are finding that they are in need of extra money, whether it be to pay off old debt, take a much needed family vacation, or make important house repairs. If you have equity in your home, you can easily obtain these funds if your credit is good and you have enough income to make timely payments.

By weighing out the pros and cons of home equity loans, home equity lines of credit, and refinancing, you will be able to make a responsible decision regarding your immediate financial needs. Your loan will give you the peace of mind that your expenses will be taken care of, and by paying off the loan according to the specific terms, your credit will remain in good standing and you will also have the opportunity to take out another loan or line of credit in the future if needed.

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