A home equity credit line (HELOC) uses the equity built up in your home to give cash for large purchases, like appliances and remodeling projects, debt consolidation and education. A HELOC, that operates like a credit card, uses your home as security. Most HELOCs have a variable interest rate, included of a public index rate plus a margin, meaning monthly payment changes that leave you at risk of incurring more interest debt, higher monthly payments and trouble keeping a budget. While HELOCs offer a convenient source of money, they can also put your home at risk.
Pay more than the minimum payment each month. Your lender must have a lot of repayment options available to help reduce the principal owed on your HELOC. By reducing the principal, the interest also decreases, saving you hundreds of dollars in the long run.
Money out savings accounts or take a 401k retirement accounts loan. The Motley Fool notes that the yield on savings is usually significantly less than the interest rate on debt, therefore it makes financial sense to eliminate the debt then save; 401k loans, unlike standard loans, carry lower interest rates, and all payments on the 401k loan go back into your retirement accounts for reinvestment.
Transfer the adjustable-rate HELOC to a fixed-rate home equity loan. The home equity loan, also based on the quantity of equity accumulated, expands the repayment period at a predetermined speed so monthly payments never change.
Refinance your existing mortgage with a cash-out refinance loan and apply the money to repay the HELOC. Refinancing also supplies a fixed interest rate, and unites your current mortgage with the HELOC equilibrium in one static payment.