Hi everyone. J.G. Wentworth here.
Listen, there’s lot of places to get cash when you need it. The issue is they’re not all the same, and some sources are more appropriate than other under certain circumstances. That’s why I’ve wanted to spend some time in my blog examining the various sources. So far we’ve covered things like credit cards, your 401(k), bank loans, friends and family and even rent-to-own stores. We’re not done yet however, as home equity lines of credit can be a good source of funds.
First of all it’s important to make a distinction between and home equity loan, and a home equity line of credit. A home equity loan is really a second mortgage in the truest sense of the word. That is the amount you borrow, say $25,000, is repaid with fixed payments every month for a specified period of time, say 15 years.
A line of credit is different. With a line of credit you can draw cash up to a certain amount, and it can remain outstanding for a specified period of time, say 10 years. You only have to pay interest each month and pay the full amount of the loan at the end of the specified period.
Positives:
· Rates for home equity lines are lower than most other forms of financing.
· Since you only have to pay the interest charge each month, a home equity line can be easy to afford.
· Staying current on the interest payments from a home equity line of credit may strengthen your credit score.
· Many banks, including the bank that wrote your original mortgage, will consider a home equity line.
· Home equity lines are relatively straightforward to apply for.
· The interest you pay on a home equity line of credit may offer tax advantages.
Negatives:
· If you don’t own your home, you cannot get a home equity line.
· Having a home equity line outstanding may negatively affect your credit score, especially if you miss or are late on payments.
· A home equity line creates a debt that must be paid back in full with regular, fixed payments.
· The bank that provides a home equity line to you will have a lien on your home.
· There can be a variety of fees including an application fee, points, a property appraisal and closing costs.
Compared to Selling Structured Settlement Payments
Even if you could get a home equity line of credit, selling structured settlement payments might be a better option. Here’s why:
· When you sell payments, you are selling an asset and therefore, you are not creating a debt that you have to pay back.
· When you sell structured settlement payments, you maintain control over the number of lenders with a financial interest in your home.
· There are often no fees associated with selling your structured settlement payments.
While selling structured settlement payments offers benefits, you need to carefully consider if you are financially able to sell some or all of your regular payment stream. If you cannot, a home equity line of credit make sense. If you can however, avoiding going deeper into debt is almost always considered the financially prudent move to make.
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