Homeowners who are looking for a short-term infusion of money might consider an interest-only second mortgage in the form of a home equity line of credit (HELOC). Although other types of interest-only mortgages have practically disappeared for all but the most affluent borrowers, many lenders still offer an interest-only option on HELOCs that middle-class homeowners can take advantage of.
You don't hear much about home equity loans these days. In fact, it sometimes seems that lenders have turned off the tap on the once-popular second mortgages that used to fund everything from home improvements to new cars to expensive vacations and more.
The beautiful and fragrant rose has a dark side-if you're unprepared when you touch the stem, you're bound to be wounded by a prickly thorn. Like the rose, a home equity line of credit (HELOC) can be a beautiful financial instrument, especially if you need funds for home improvements or unanticipated medical expenses. But if you're not careful, your finances may get pricked by a painful thorn, and you may bleed for years to come.
HELOC lenders are now realizing that they were overly enthusiastic about approving big credit lines for borrowers. As they try to reduce their risk exposure, some homeowners are getting a surprise notification that their HELOC has been cancelled.
HELOC second mortgages are often structured with interest-only payments, but that convenience doesn't last forever.
When planning your financial future, the one thing you can count on is change. Unexpected life events can make the best-laid plans go awry. Flexibility is critical, and it's the main reason people choose an open-ended home equity line of credit (HELOC).