ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

What Is A HELOC?

Updated on January 19, 2012

Use Your Home Equity For Good

If you are facing a lot of bills, or you want to use your equity to pay for an improvement to your home, you should consider getting a HELOC. What is a HELOC? This stands for Home Equity Line Of Credit.

To qualify for a HELOC, you must have a satisfactory credit score and have enough equity with which to borrow against. Be careful that you can repay it, or it can have the same consequences as not paying your mortgage.

A home equity loan is often referred to as a second mortgage because the lender will hold the second position on the loan. This means that if the home is foreclosed upon, this lender will get anything that might be left over after liquidation.

How Do You Get A Home Equity Loan

How do you get a home equity loan? You will apply for this loan just like you would apply for any other loan. Go to the bank, fill out a form and you will hear back from the bank in a couple of days. To make the process easier, you should file online and hopefully get a decision immediately.

To get approved, or make the approval process easy, you should have a credit score of 650 or higher and have sufficient equity. Your lender will be able to show you what equity requirements they will have to offer a loan.

Ways To Use A Home Equity Loan

If you do get a home equity loan, what are some things you can do with it? Some ideas include:

-Consolidate Debts

What you can do is get a home equity loan, and then use that money to pay off your bills. You then repay the home equity loan. This should give you a lower interest rate doing it this way.

-Cash Out Equity To Improve Your Home

If you have some improvements you want to do, or you need to repair the roof, it is a good way to get the money that you need. Equity does nothing for you if there is no way to access it.

-Pay Medical Bills Or Put A Down Payment On Another Loan

If you want to pay off some old medical bills, or you want to buy a new home, getting a home equity loan could be the first step toward making that a reality.


If You Cannot Pay Off A Home Equity Loan

If you can't make the payments to your home equity loan, you should be prepared to lose your home. It might not make sense for a second lien holder to go after your home, but there is a reason for that.

Say you don't make the payment and the lender moves to foreclose on the home. What happens is that the first mortgage holder will get their money back first. The second lender will then either get what is left, or if you are underwater, you will most likely get sued and brought to court.

So, if you cannot pay your second mortgage off, you should make arrangements to do so, or be prepared to declare bankruptcy.

Remember This Is A Loan

Your second mortgage is a loan that needs to be repaid. This means that you should treat it just like you would any other debt obligation. Yes, it is your equity, but it is not your money until the property is sold.

Home equity loans are great tools to pay off debts or make some improvements, but make sure that the money is well spent. Once you cash out the equity in your home, it is going to take some time to either repay the loan or build up more equity in your home.

Comments

    0 of 8192 characters used
    Post Comment

    • profile image

      FourFresh 2 years ago

      A box spread, like a cnoservion spread or a reverse cnoservion spread, is an arbitrage position. Excluding pin risk, it creates a risk-free, albeit small, return.A box spread can be either a credit or a debit spread.If you create it for a credit, the initial credit plus the interest received on that credit should be enough to pay the cost of closing the spread (the difference between the two strikes) at expiry.If you create it for a debit, the initial debit plus the interest on the debit amount should be less than the credit you receive when closing the spread (the difference between the two strikes) at expiry.For all practical purposes you can forget about looking for arbitrage positions in listed options. The only way to create one with a positive return is to leg into it, which defeats the whole purpose of an arbitrage position.The closest I have every come to creating an arbitrage spread is a split-strike cnoservion, which is not really an arbitrage spread.I do know of one option day-trader who sometimes uses box spreads and cnoservions to protect his positions when he has to hold them overnight.

    • Cody Hodge profile image
      Author

      Cody Hodge 5 years ago

      No, thank you for reading (:

    • gjfalcone profile image

      gjfalcone 5 years ago from Gilbert, Arizona

      Informative hub, thanks.