Consolidating equity

After a certain number of years (10 years, for example), the draw period ends, and you’ll enter a repayment period in which you more aggressively pay off all of the debt, possibly including a hefty balloon payment at the end.HELOCs usually feature a variable interest rate too, so you could end up having to pay back much more than you planned for over the 15- to 20-year life of the loan.Technically, you own everything, but the house is being used as collateral for your loan.Your lender secures its interest by getting a lien on the property. If it’s worth 0,000 and you still only owe 0,000, you have a 60 percent equity stake.For this reason, HELOCs are often useful for expenditures that can be spread out over a period of years, like minor home renovations, college tuition payments, and helping out other family members who may temporarily be down on their luck.

Equity is an asset, so it’s a part of your total net worth.

The major issue with either type of equity loan is that your home serves as the loan collateral.

If you're unable to repay for any reason, your lender can take your house in foreclosure and sell the property to recover its investment.

However, it’s wise to put that money toward a long-term investment in your future—paying your current expenses with a home equity loan is risky.

Fund retirement: You can choose instead to spend down your equity in your golden years using a reverse mortgage.

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