In 2000 when traditional banks were liberal with HELs or Home Equity Loans and allowed up to 125% of a property’s equity to be borrowed, real estate agents got HELOCs left and right on their homes. The property they bought was valued a lot higher compared to what it was worth when they bought it. Real estate agents thought it would be an excellent idea to have some funds readily available for emergency uses.

Most individuals got bought their properties because it was for sale, and they will be readily available in case they needed it. Most buyers used some of their HELOC or Home Equity Line of Credit to pay part of the debenture, then got rid of the LOC after a couple of years when they refi their mortgage.

Today, those credit lines and HELs, are usually limited by lending firms to 80% of the property equity. With the government planning to raise short-term IRs (interest rates), now may be an excellent time to get better rates on HELs. A lot of HELs charge annualized IRs of six to eight percent, and lån (loan) IRs could match increases in the prime borrowing rate.

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How do these things work?

If people are thinking of getting HELs, it is worth considering what they are using the funds for and how they will pay the debenture back. The fund can be used for whatever they like, from a new vehicle to starting a new company or consolidating their credit card debts. House improvements are the most popular use. The debenture is for certain amounts for fixed-term at fixed IR, with interest and principal paid on a monthly amortization.

According to financial experts, five years is the most popular one, though these things can go for as long as thirty years. Traditional banks offer HELs of up to 85% of the property’s equity to its market value. For instance, a house valued at one hundred thousand dollars with a first housing debenture of $50,000 can have a HEL of up to $30,000 as a second credit.

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What funds are used for is people’s call

Individuals are checked for their creditworthiness, as well as their ability to pay the debenture, just as they would for first mortgages. Traditional banks will ask what the fund is being used for, but the answer will not change their chance of getting approval.

According to experts, the usage of money does not factor in. After house improvements, debt consolidation and college tuition are two common uses for HELs. Bank of America understands how people can afford their loan obligations. One of the people’s overall goals is to make their client’s financial life a lot better. Financial institutions always emphasize responsible use of funds.

Property equity debenture use options

While people’s financial situations are different, listed below are some bad and good ideas for these debentures:

Home repairs or remodeling

Which property improvements add more value to houses and which do not is debatable, so the primary consideration may be how much enjoyment they will get out of remodeling projects or repairs that are needed. When the person’s house needs expensive repairs, a new kitchen, a new roof, finishing basements, or new bathrooms for added recreation and family member, they can use home equities for these types of improvements to assets are pretty common, as well as reasonable uses of their savings. Most of these debts will be paid from sales proceeds when property owners sell the property.


Losing jobs, having unexpected medical costs, and having to care for individuals are things considered life emergencies, and using these debentures can be a good decision. Emergencies are only good to use for taking out HEs in a house. It is a lot better to keep debts lower, save funds for the rainy days and pay off credit cards. Adding a comfort room or other home improvement projects is not going to help in their process. They are not building equities in their properties. They are practically giving it away.

Debt consolidation

These things can be used to consolidate debts, as well as paying pf credit cards. IRs on debt consolidation debentures can be twice as high as HELs, which may be deductible from salary taxes as part of their property’s housing loan interests.