Home Equity Line Of Credit

Caution when using home equity lines of credit!

A home equity line of credit is becoming more and more available from lenders.  When you use the equity in your home, you may qualify for a sizable amount of credit. This credit is available for use when and how you please, and the interest rate is relatively low. Another great things is, under the present tax law, depending on your specific situation, you may be allowed to deduct the interest because the debt is secured by your home.

If have a very important need for credit, a home equity loan may be right for you. Before making this very important decision, you should carefully consider the costs of a home equity lines of credit against the benefits. You should shop for the best credit terms that meet your borrowing needs. These needs shouldn't pose an undue financial risk for you. Remember, this is serious business, failure to repay the amounts you've borrowed, plus the interest on the loan, could mean the loss of your home.

What is a home equity line of credit?

A home equity line of credit is a form of revolving credit where the home serves as collateral. The home is most likely to be a consumer's largest asset. Due to the importance of their home, most homeowners use their home equity lines of credit only for major items. These include, but are not limited to, education, home improvements, or medical bills and never for day-to-day expenses. The loan balance is normally available using some form of checks or cash cards. After you make a withdrawal a payment will come due, so make sure you can make the payment.

When establishing home equity lines of credit, you will be approved for a specific amount of credit. This is your credit limit, the maximum amount you may borrow at any one time under the plan. Most lenders set the credit limit on a home equity line by using a percentage formula. It could be 75% of the home's appraised value and then subtract from that the balance owed on the existing mortgage. An example would be:

Appraised Value  $100,000.00
Time                             .75
Equals               $  75,000.00
Minus Balance
Owed                $  55,000.00

Equals               $  20,000.00  Or the amount of your credit line

What should you look for when shopping for a plan?

If you decide to apply for a home equity line of credit, look for the plan that best meets your particular needs. Read all of the credit agreement carefully. Examine the terms and conditions of the various plans. This will include the annual percentage rate (APR) and all the costs of establishing the plan. The APR for a home equity line of credit is based on the interest rate alone. It will not reflect the closing costs and other fees and charges. With this in mind you'll need to compare these costs, as well as the APRs, among all the lenders.