A home equity line of credit is a useful financial tool for homeowners. Unlike a traditional home equity loan, which has a fixed repayment schedule, the line of credit, also known as a HELOC, has a more flexible repayment schedule. It also has a more flexible payout schedule; instead of receiving the money in a lump sum, those who have a HELOC can withdraw funds as needed. If there is no balance, there is no payment due. And when the funds are repaid, they can be borrowed again. The HELOC is a great tool for financing anything that has an ongoing expense, such as a do-it-yourself home remodeling project.
But there are downsides to home equity lines of credit, and one of those is the variable interest rate. Home equity loans, with fixed repayment schedules, have fixed interest rates. A HELOC, with its greater flexibility, does not. As interest rates continue to rise, that could be a problem for homeowners who have a HELOC with a large outstanding balance. The payments will increase, and that could make some homeowners uncomfortable.
What are your options if you have a HELOC and rates are rising? Here are several things that you can consider:
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