No Emergency Fund? Try a Home Equity Line Of Credit

In case you are not prepared or fall short of meeting your financial obligations, then the best and safest solution is to apply for a home equity line of credit to deal with such unanticipated emergencies. A home equity line of credit serves as a great emergency fund, which can be accessed directly whenever the need arises. The best benefit of home equity line of credit is that you do not need to make any payments, interest or debt until you actually use it. A home equity line of credit is a very convenient financial instrument since it very flexible and yet efficient enough to fund all your requirements.

Home equity line of credit is very different from the conventional, regular loans. They are very similar to the way one would use a credit card. You have a credit limit set on the home equity line of credit and you only need to pay interest on the amount that you have actually borrowed. Moreover, the rate of interest for a home equity line of credit is much lower than what you would otherwise pay for a credit card. Another advantage of a home equity line of credit is that you only need to pay interest only in the initial stages during the draw period. Hence, a home equity line of credit is obviously a smart financial choice.

Another important aspect of a home equity line of credit is that the rate of interest payable on the loan amount borrowed is adjustable and tends to fluctuate. It is greatly influenced by the federal lending rate and directly corresponds to it. For instance, if the federal lending rate rises, so does the interest rate for the home equity line of credit and vice-versa. In such circumstances, it can prove to be expensive for you due to the high interest rates. Also, the more you draw, the more you will have to repay with all more interest. Hence, if you need to know the exact amount of monthly payments that you have to make then a home equity line of credit may not prove to be a very good approach to satisfy your financial needs and requirements.

Owing to the fact that your home serves as a collateral security against your home equity line of credit, you may be eligible for some tax deductions. Whether or not your interest payments are subjected to tax deductions generally depends on the value of your collateral and any other current equity debts that you owe. You can consult a professional in this field regarding this matter in order to verify if your interest payments qualify for tax deductions or not. If your house has a lot of equity attached to it, then you can be eligible for a very high credit limit. A HELOC is an ideal emergency fund since it involves low closing costs, and practically no early repayment fees either. All said and done, this is an ideal option in an emergency.