July 31, 2007
Home equity line of credit: A Great Financing Choice
Home equity line of credit has emerged as a new option in the world of credit cards. Home equity line of credit also known as HELOC, is a line of credit that is based on a fixed maximum amount. Under the home equity line of credit the borrower has the option to borrow a maximum amount. You can borrow the amount again, as soon as you repay your first amount. The home equity line of credit provides a loan that is kept secured against your home. The loans provided by the home equity line of credit are based on the interest rates that are much low as compared to other credit cards.
There are major benefits that you can enjoy through the home equity line of credit. The most important is your home equity line of credit can be used to repay your expenses of your debt consolidation, to pay the tuition fees of your college, to book your new car and other such expenses. Apart from that, when you go in for home equity line of credit, you get the leverage of major deduction in the taxes. The interest rate of the home equity line of credit is much lower than other credit cards. As the home equity line of credit is secured against your home, the risk involved in it is high. The possibility to loose your home always persists when you are unable to make the payments.
Maximum amount allowed to be borrowed When you go in for your home equity line of credit, you are allowed to borrow a maximum amount, which is not fixed. The lender judges your maximum amount by analyzing your creditworthiness. The maximum amount to be borrowed through the home equity line of credit also depends on the lender. There are some lenders who lend up to 80% of the appraised value levied on your house. The amount includes your first mortgage, and your home equity line of credit.
Repayment of the Home equity line of credit:
The home equity line of credit is repaid in several ways. Each month the lender fixes a certain percentage of the principal amount, plus the interest rate for that you have to pay as your monthly payment. However, the interest rates levied on the home equity line of credit are quite fluctuating, and the monthly payments are levied on the outstanding amount of the consumers. Therefore, the monthly repayment of the loan keeps fluctuating every time. There are certain home equity lines of credit where you are suppose to pay only the outstanding interest every month.
Repayment at the end of the term:
At the end of the loan term, refinancing or repayment of the home equity line of credit is expected. Some home equity lines of credit offer the borrower the chance to refinance the outstanding portion to a fixed rate loan. Others may call for immediate repayment. This can be a problem for a borrower who is unable to obtain finance. At this point, the home could be at risk for foreclosure.
Conclusion Home equity line of credit proves to be the appropriate alternative for those who have built equity on their home. The borrower of the home equity line of credit gets the advantage of having a tax deductible interest rate, and the provision to repay the expenses through it.
April 25, 2007
Getting a Home Equity Line of Credit
Credit cards are a good thing, but a home equity credit line is a great way to use the equity in your home to finance big ticket items such as home improvements, paying off high-interest debt, financing a car, or paying for college tuition.
A credit card is a revolving line of credit that you use when you need it, and make payments only if you use it. But credit cards can charge very high interest rates. A home equity line of credit (HELOC) is also a revolving line of credit. You draw from it again and again as you need it, and make payments only if you use it. But, unlike most credit cards, you get a much lower interest rate with a home equity line of credit than with a credit card.
Using a home equity line of credit is a way to turn bad debt into good debt. In other words, the interest on the debt you have on your high-interest credit card cannot be deducted from your taxes. But the interest on your HELOC is usually tax-deductible.
There is also flexibility that can be built into home equity loans that you wouldn’t get for say, an auto loan. There are different home equity programs that have an interest-only option. With an interest-only loan, you can pay only the interest for a pre-determined amount of time and pay as much principal as you want, even none. You can’t do that with an auto loan. Most lenders offer home equity lines of credit for up to $100,000. But Quicken Loans offers a line of credit for up to $500,000! This is a great option to have when buying your dream vacation home.
Learn about a Home Equity Line of Credit
A home equity line of credit can be thought of not as a mortgage or a loan, but as a smarter way of using your home’s equity to finance big-ticket items. Think of it as a low-interest alternative to high-interest credit cards that comes with greater flexibility and tax advantages.
If you are wondering whether a home equity line of credit is right for you, call us at 800-251-9080 to talk to a home loan expert or click the button below and a home loan expert will contact you.
Home Equity Line of Credit
A home equity line of credit (HELOC) is a type of second mortgage. A HELOC, also known as a home equity line of credit, is a line of credit drawn from the equity of your home. Due to the fact that these loans are lines of credit, you are typically given a maximum amount of monies that you can draw from. They work similar to the way in which a credit card works. However, the financing rules and benefits, as well as the repayment terms are different than that of a credit card.Your home equity is used as the collateral for the loan and you receive a line of credit from which you can draw money.
Benefits of a Home Equity Line of Credit
Using your home equity line of credit for home improvements, consolidating your high-interest debts, or keeping a “rainy day” fund, is a better financial alternative than using your credit cards. Here are the top 4 home equity line of credit benefits:
Initial Interest-only PaymentsWhen you take out a home equity loan, in the beginning years of the loan, you will be paying monthly payments on the interest-only. You are allowed to make additional payments towards the principle of the loan. If you do this, then it is important that you check with your lender periodically, to make sure that they are correctly crediting your outstanding loan balance.
Different Terms
With some HELOCs there is the possibility of a prepayment penalty, so make sure you check that out before you chose that specific loan. There are some HELOCs that have balloon payments. This means that your monthly payment will continue to be interest-only until at the maturity time, you will then payoff the outstanding principle balance. On the other hand, some HELOCs are structured so that after the interest-only payment period of the loan is completed, the loan then becomes self-amortizing. Self-amortizing means that the monthly payment becomes large enough to cover both the interest expense and the reduction of principle balance over the remaining term of the loan. Simply, this means that if you have the interest-only period of the loan for the first 10 years and the self-amortizing period for 10 years after that, then at the time of maturity, or the 20 years, you will then be in a position to pay off the outstanding balance.
Convert to a Home Equity Loan
There are some HELOCs that are structured in a way where they can be converted into a home equity loan. If you have any questions on a HELOC, then it is important that you talk with your broker or lender.
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