Home Equity Lines of Credit
Home equity line of credit users guide. What you need to know to find a home equity line of credit that's perfect for your needs.
More and more lenders are offering home equity lines of credit. By using the equity in your home, you may qualify for a sizeable amount of credit, available for any use, at a relatively low interest rate. The interest on these loans is ordinarily tax-deductible because the debt is secured by your home.
A home equity line of credit (HELOC) is a form of revolving credit in which your home serves as collateral. It works much like a credit card in many ways. Your lender approves you for a certain maximum line of credit, and you are then allowed to withdraw money as you need it, up to that specified credit limit, over a specified period of time. As you pay down the principal, you can use the credit again.
Many lenders set the credit limit by taking a percentage of the home's appraised value, less the amount owed on the existing mortgage. If your home's appraised value is $100,000, for example, the lender might take 75% or $75,000 less your remaining mortgage of say $50,000, and set your credit limit at $25,000.
Many plans set a period during which you can borrow money, such as 10 years, at the end of which you may be allowed to renew the credit line. Some plans may require payment in full at the end of the period, while others may allow repayment over a fixed repayment period of, for example, 10 years.
The home equity line of credit affords you more flexibility than a home equity loan. The HELOC has a variable interest rate that fluctuates over the life of the loan. Payments vary depending on the interest rate, the amount owed, and whether the credit line is in the draw period or the repayment period.
Your Next Step
If you are considering the use of a home equity line of credit, you would be wise to do two things.
First you should get several quotes, from several lenders regarding your proposed home equity line of credit. Expect the rates, terms and fees to vary widely! Be especially tuned to comparing the costs of each plan which could be substantial, and be careful to "compare oranges to oranges" as you do so. Costs could include a property appraisal fee, an application fee, points, and closing costs.
Secondly, you should get quotes, for comparison purposes, on a
home equity
loan
for the same amount of money, to see which loan
best suits your needs and which involves the lowest costs over the period of the
loan. It may be that the fixed rate second mortgage will cost you less and suit
you just as well.
If all of this sounds daunting, the good news is that there's a quick, easy, and free way
to take this next step, and it puts you under no obligation whatsoever. You can
go the LowerMyBills.com free service and compare
home equity rates
by entering your specific information on a single quick and easy form. You'll
receive up to 4 free quotes in a short amount of time, and you'll quickly be
able to confirm or refute the validity of your own estimates.
You may choose to proceed further with one or more of these lenders, or you may decide to go elsewhere for your home equity line of credit, but at least you'll have a better idea as to whether the loan you have in mind is "do-able". The quotes you'll receive will take into account your state of residence, your stated general credit standing, and a number of factors that you provide that are specific to your situation.
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equity quotes.