If you are in the looking for a source of what I like to call “rainy-day” funds, a home equity line of credit could be a great option for you.  Essentially, a home equity line of credit, or HELOC is credit given, using your home as collateral, and based on the value of your home compared to what you owe on your home mortgage.

So if you had a house that was worth $100,000 and you owed $50,000 on your mortgage, you could qualify for up to $25,000 ($100,000 x 75% = $75,000 | $75,000-$50,000 = $25,000) HELOCs can be used like cash, and typically offer low interest rates, based on a financial index plus points (margin). Find the right Home Equity Line with one of our recommended UpFront Partners.

No such thing as a free lunch.
So home equity lines are free money right?  Wrong!  In the wrong hands, HELOCs can be devastating--and could mean the loss of your home.  In fact, these lines of credit were what gave thousands of people early exits from their homes over the past few years. 
Here’s what happened.  Using the example above, let’s say you had the same house, worth $100,000 and you owed $50k. You could qualify for $25,000.  But because of the housing bubble, that house is valued at $200,000.  You still owe $50k, but back then, the banks were willing to lend up to 95% of the “appraised value.”  Same situation, but now you could get a line for up to $140,000!  Many irresponsible home-owners spent their way right out of their homes because they viewed their home equity like “free” money rather than a debt that needs to be paid back. 

So who needs a home equity line of credit?
Simple. Anyone who is responsible with their finances should have a home equity line. Home Equity lines of credit usually cost you nothing to keep open, and can be a nice safety blanket  to have around in case of a medical emergency, sudden home or car repairs, making (thoughtful) improvements to your home -- even as an alternative to a traditional car loan. HELOCs give you access to funds at very good rates, and in many cases, you can even write off the interest you pay from your taxes.  So do your homework and compare rates and programs with one of our preferred lenders.