Home Equity Line of Credit USED for A Mortgage Reduction Strategies 11

The home equity line of credit (HELOC) and the traditional home equity loan are two entirely different things. Their difference can save you thousands of dollars and even slash 13 years from your mortgage.In essence, the traditional credit card and an American Express credit card are seen to be almost the same ” they ARE credit cards. How exactly are they different from each other?The difference is actually quite significant.A traditional credit card such as a Visa or MasterCard charges you a high interest rate but you’re allowed to pay only the minimum balance at the end of each month. With an American Express card on the other hand, you have to pay the balance in full at the end of each month otherwise there will be huge charges for the outstanding balance and interest.The American Express card will cater to your purchasing needs for 30 days but you need to pay off your balance as soon as it is due.So while credit cards seem to be just credit cards, they in fact serve two different purposes. If you do not plan your cash flow, you could be in trouble if you don’t make payments on your American Express card.The same is true with any HELOC and home equity loan account. When you do not know the difference between these two, you might end up paying thousands of dollars in extra interest payments. If you knew how to use it, you would actually be able to take 13 years off your mortgage balance.Lets begin.HELOC interest rates are variable. This line of credit can be secured through your home and you can consider this as your second mortgage.This means that the interest rate adjusts to the prime interest rate. Thus, if the latter increases, HELOC interest rates will also increase. So if your prime interest rate falls, you will get decreased HELOC interest rates as well. Depending on your present financial status, you will even be entitled to enjoy lower interest rates for HELOC which will be a few points lower than your prime rate. When you use a HELOC mortgage, interest is calculated based on the outstanding balance of your HELOC. So if you make payments during the month, the interest will be calculated every single day and is applied to your account. This system of calculating interest is called the variable method simply because the amount of your interest could increase or decrease daily.This makes the variable method completely helpful.You can pay off your HELOC and borrow from it anytime as long as you dont exceed the HELOC limit.Although the traditional home equity loan is quite similar to the HELOC, there are two characteristics that establish the difference.First, the home equity loan operates on a fixed time frame. You have to pay a fixed home equity loan interest per month and you will be paying a fixed interest rate. There are no fluctuations even when the prime interest rate changes. This mortgage will then be considered as a 30-year fixed loan account.The second difference with is once you borrow against it, you cannot borrow from the equity loan at any time. In order to draw funds from this equity loan you have to have sufficient equity in your home and refinance your home equity loan. The perfect time to use the traditional home equity loan is when you require lump sum payments up front and you plan to make small payments every single month. You can pay back both interest and pay extra towards principal. In all aspects, a traditional home equity loan is fixed. The interest-rate, the amount you borrow and the home equity loan payment term is fixed. You cannot change this and you’re expected to repay this mortgage over the life of the loan. The HELOC loan is variable. The interest rate as well as the amount you borrow can change over the repayment term of the loan.Each has its own significant advantages and disadvantages.The one significant advantage of the HELOC that no one talks about is that you can use it as a mortgage checking account. This means that you can deposit your paycheck in the HELOC, pay bills and make electronic bill payments every single month. As you can see this works just like a regular checking account.And heres another undisclosed fact.Do you know that by using the HELOC as a checking account, you can slash at least 13 years off your primary mortgage and save thousands of dollars? In fact, you will be able to get $63,000 worth of savings without spending more or changing your financial lifestyle.Because interest rates will vary and you will be able to withdraw and deposit money anytime, the HELOC is certainly one effective strategy that you can use in order to pay off your mortgage early and achieving a mortgage reduction strategy faster.To get all the latest tips, strategies, and tactics about mortgage reduction , be sure to visit us at mortgage reduction