Home Equity Line of Credit: Is it a Safety Net to Get You Out of Trouble?

Home Equity Line of CreditHome equity line of credit (HELOC) is the bank account of your mortgage.

Apart from functioning as a medium where you deposit repayments, this can double as a safety net — if you have the discipline to keep track of your charges — and the desire to possibly cut your mortgage term by half.

It is an advantageous way to stay on top of your loans, while also avoiding nominal interest charges. For this reason, PrimaryResidentialMortgage.com, a specialist in the field, shares some expert insights below to guide you:

Use It with Caution Though

The arrangement of using HELOC as a safety net for mortgages has been around in the industry for 20 years, coming all the way Australian and European banks that have quite flexible systems. The principle behind this countermeasure is simple: merged personal bank and mortgage account will result in lesser interest and long-term charges. 

As explained by the Daily Herald, "…every time you deposit your paycheck or other funds into your account, the amount of interest you are paying on your home, in dollars, goes down. Folks in other countries pay far less interest in home ownership than we do in this country."

On Personalizing Mortgages

Apart from the total cost of the house, what ramps up the mortgage rates are the fees associated every time you make a deposit. If you’re not yet on a combined HELOC personal account, you are paying more than what you owe from variable interest rates and transaction charges. 

For combined accounts, however, you can bypass all the extra charges since the bank will automatically allocate your paycheck once it arrives. Keep in mind though that you will be living on credit for a while because you cannot use up your merged HELOC and personal bank account.

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The Accumulated Benefits of HELOC

Since you will pay far less due to the deductions from joining your personal and mortgage accounts, the time it will take to pay off the mortgage will significantly become faster. The money you will save from all the deductions can be arranged to advance periodical payments.

Ultimately, how well you can pay off the mortgage or any loan for that matter will depend on the discipline you have financially.