วันอังคารที่ 2 มีนาคม พ.ศ. 2553

Understanding a Home Equity Line of Credit

Understanding a Home Equity Line of Credit
By Ben Anton

What is a home equity line of credit? A home equity line of credit is a revolving loan, with a minimum and maximum amount of withdrawal.

And what makes the availment of a home equity line of credit a viable loan option in comparison to a home equity loan?

There's the ease of use in accessing the loan. This can be as trouble-free as writing a special check to access the account, the use of your credit card or ATM machines to get funds. Also, you only pay interest on the amount you've used. And have the option of renewing the credit line when the draw period expires.

On the other hand, the home equity loan is paid to you in a one-time lump sum manner, immediately after the contract has been signed. Once you have received the entire amount, you can no longer borrow on that account.

This offers you the flexibility of accessing the amount you need to borrow when you want to for duration of the agreement. If you are planning to use the loaned amount in installments such as college tuition fees, or as a stopgap while you are unemployed, take out a home equity line of credit.

Financial experts generally recommend the use of a home equity loan for big-ticket items, like a car or yacht, medical emergencies or for renovating a home.

With the use of a home equity credit line, you can postpone paying the principal for an agreed upon number of years or pay a special discounted interest rate. On the opposite side of the spectrum, a home equity loan requires you to pay the principal and interest fees for the duration of the entire loan.

If you have a disciplined attitude towards managing your funds, then a home equity credit line will work for you. You'll use it only when needed.

You'll enjoy more choices of payment options based on interest rates. Some lenders offer a flexible interest rate or one where the borrower pays the principal plus interest; it's all up to the borrower. Or you can also decide on a fixed monthly payment schedule.

In addition to this, a home equity credit line has shorter payment term schedules. With a home equity loan, you are paying for the convenience over a longer period of time.

However, there are two features a home equity line of credit has, that need to be weighed together with the advantages:

A home equity line of credit places a large amount of credit at your disposal. However if you default on the loan payments, you run a real risk of losing your home. Conversely, this is why it is attractive to lenders, because their experience has shown them very few borrowers default on payments.

The second feature is the possibility of being liable to pay a large repayment amount at the end of the home equity line of credit. Ask the lender if this is a feature of the loan, and if so, assess your ability to pay this amount. If you feel you don't have the capacity, then have a renewal option built into the contract.

There are no cut and dried answers to the question of whether a home equity line of credit is the best loan option for you. As a borrower, you must assess your need for the loan, the purpose you'll use it for, and your capacity to pay. Only then will you be able to make an informed decision about this loan.

Article Source: http://EzineArticles.com/?expert=Ben_Anton
Understanding a Home Equity Line of Credit

Understanding a Home Equity Line of Credit - How it Differs From Other Conventional Loans

Understanding a Home Equity Line of Credit -
How it Differs From Other Conventional Loans

By Barry Dawn

Because the home is essentially the most important asset of any person, using it as collateral to get a home equity line of credit should be done sparingly. Financial experts recommend that this should only be used for special items such as medical bills, education and major home improvement.

Risking your home for foreclosure to borrow money that will be spent on your daily expenses is not a good idea.

How does a home equity line of credit work? How is it different from a mortgage - Toronto or elsewhere? Basically, a home equity line of credit is just like having a credit card.

You have a credit limit and it's up to you on when you will "draw" that amount. This is one of the major differences of this financial option from other mortgages - Woodbridge or elsewhere.

In essence, in a home equity line of credit, the borrower is not given the entire amount of the loan upfront. Funds can be drawn anytime within the draw period - or in mortgage lingo, term.

Also, the interest rate of a home equity line of credit is variable. This means that the interest rate changes over time and such a change is dependent on certain market indices, such as the prime index.

How Repayment is Made

Repayment of a home equity line of credit is a bit interesting. You may opt to pay only the minimum amount required - this includes a portion of the principal plus interest. Other plans would allow you to pay only the interest during the "draw period." The trouble with this payment scheme is that at the end of the plan, you have to pay the principal in lump sum.

Also, paying only the minimum amount would mean that your payments may not be enough to cover the entire principal.

This further means that at the end of the term, you are still obliged to pay a considerable amount of money. If in both cases you cannot fulfill your end of the bargain, then you run the risk of a foreclosure.

Therefore, it's a good idea to choose to pay more - more than the required minimum payment. This way, you are regularly paying off a portion of the principal. And at the end of the plan, you will only be paying a lesser amount to cover for the principal.

A home equity line of credit is an attractive financial option mainly because of its flexibility in terms of borrowing and repayment. Also, the interest paid in this kind of "loan" is tax-deductible in specific circumstances.

More importantly, however, the appeal of a home equity line of credit stems from the fact that it builds on your image. Getting one doesn't obviously point out to the fact that you are in deep financial trouble - as in the case of a second mortgage.

Article Source: http://EzineArticles.com/?expert=Barry_Dawn
Understanding a Home Equity Line of Credit -
How it Differs From Other Conventional Loans