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

Bad Credit Home Equity Line of Credit Loans – Three Things to Know

Bad Credit Home Equity Line of Credit Loans – Three Things to Know
By Carrie Reeder

Home equity line of credit loans can get you the money you need to consolidate debt, make home improvements, pay college tuition, and much more. Though bad credit home equity lines of credit are available to those who need them, there are a few things borrowers should know before applying.

Rates Will Vary

Interest rates on bad credit home equity line of credit loans can vary significantly. To make sure you get the best rates, you will want to get at least three quotes before accepting an offer.

You will also want to keep in mind that though bad credit will require you to pay higher rates, you are still entitled to fair treatment. Make sure the rate you are being quoted is in line with what someone with your credit score should pay. Multiple quotes will help in this respect as well.

Terms and Conditions Can Vary

Different lenders offer different terms on bad credit home equity line of credit loans. Before signing any papers, make sure the terms and conditions on your loan are reasonable for your financial situation. You don't want to get yourself into a tight spot by agreeing to pay back more money in a specific time period than you can afford.

Fees Will Vary

As with almost any loan, there are fees associated with bad credit home equity line of credit loans. Most borrowers end up paying many of the same costs that were paid out with the original loan, such as title fees and points.

These costs can add up fast and vary depending on the lender that you work with. Before taking out a bad credit home equity line of credit, you will want to make sure you fully understand exactly how much the loan will cost you.

Article Source: http://EzineArticles.com/?expert=Carrie_Reeder

Bad Credit Home Equity Line of Credit Loans – Three Things to Know

Fixed Rate Home Equity Line of Credit - Sounds Good, But Is It?

Fixed Rate Home Equity Line of Credit - Sounds Good, But Is It?
By Peter Kirkham

Sometimes you can save a little money on the front end with a variable rate home equity line of credit, but a fixed rate loan will be more predictable, and you'll always be able to budget for your loan payment every month because the minimum payment will be unchanging. There are several different reasons that people will take out a fixed rate home equity line of credit, so if you're thinking about doing any of these things, this is an option you might consider.

One traditional reason that people take out a line of credit on their home is for home improvements.

If you moved into your home several years ago and are ready to start laying new flooring, replacing kitchen appliances, or doing more major repairs and renovations like adding on or knocking out walls, a fixed rate home equity line of credit could be a good way to go. One way to be sure that this line of credit pays off is to insure that the improvements you're making will actually increase your home's value.

This way, you're taking out a line of credit against your home's current value, but you're making your home worth more, which actually raises the equity you have in it. Don't, however, improve your home for more than it would sell for in your neighborhood; even if you plan on staying in your home for a while, you'll still want it to be salable just in case, and you can't sell a house that's worth much more than those in the surrounding neighborhood.

To be sure that you aren't putting more money into your home than you'll get back out of it, check out the average prices of the homes in your neighborhood, and don't add a lot of features that your neighbor's homes don't have.

Another reason to take out a home equity line of credit is to make a major purchase. Maybe you want to take the vacation of a lifetime, or maybe you want to put a pool in the backyard. Either way, be sure that you're making a wise financial decision and that you'll be able to pay back the loan easily.

Also, see what you'll end up paying once the interest rate is added in. You don't want to end up paying $15,000 for your $10,000 vacation when you could have saved up for part of it in the first place!

One final reason that some people use a fixed rate home equity line of credit is to consolidate existing debts.

While a line of credit isn't the exact same thing as a home equity loan, it can be used in much the same way. You'll use the credit you get because of your home's equity to pay off higher-interest debts like credit cards and cars. Then you'll be left paying off the line of credit on your home, which probably lowers your monthly payments and certainly lowers your interest rates.

This can be a helpful financial move if you're in a lot of credit card debt.

Article Source: http://EzineArticles.com/?expert=Peter_Kirkham

Fixed Rate Home Equity Line of Credit - Sounds Good, But Is It?

Understanding Home Equity Line of Credit

Understanding Home Equity Line of Credit
By John Glasburg

Home equity line of credit (HELOC) functions more like a typical variable rate credit card. You are allowed to borrow up a specific amount of money - your credit limit - and you may tap the credit anytime you want, usually by making a check.

Typically, the lender calculates the sum of your credit line based on the percentage (generally between seventy-five and eighty percent) of your house's appraised value and then subtracts it with the outstanding balance of your current mortgage. Your lender also evaluates your credit score and/or credit history and reviews your overall financial condition.

If you have to repay the home equity loan by paying fixed monthly payment that include both principal and interest, then with a HELOC you generally have the option to make a payment only on the interest each month or paying principal and interest on the debt.

If you choose to make interest-only payment, the payment amount depends on the current interest rate and also the amount of your total credit limit. Say, if your HELOC is $30,000 but you have borrowed only $10,000, the interest is calculated only on the $10,000.

The actual problem with paying only the interest is that the more time the principal is left unpaid, the more the HELOC costs you, particularly if the interest rate begins to rise. Also, if the HELOC expires after a specific number of years and there are no provisions for renewing it, your lender will probably ask you to pay the entire amount you still owe based on a lump sum payment, also called as a balloon payment and if you can't afford to pay then you may lose your property.

Federal law necessitates lenders to cap the rate of interest they charge on your HELOC. Before you sign the HELOC-related paperwork, you should get clear on the interest rate cap. Also, ask if you can convert your HELOC for a fixed interest rate.

Article Source: http://EzineArticles.com/?expert=John_Glasburg

Understanding Home Equity Line of Credit

Home Equity Line of Credit (HELOC) Basics

Home Equity Line of Credit (HELOC) Basics
By F. Smith

Home Equity Line of Credit (HELOC) is term to describe loans that uses a borrower's home as collateral. Also referred to as home equity line, lenders determine the maximum loan balance available where homeowners could draw credits at their judgment. Like all typical loans, a predetermined interest rate is agreed upon based on current market rates.

HELOCS should not be confused with other home loans such Reverse mortgages for example. Unlike Reverse Mortgages, the total amount of credit could not be released upfront but funds could be steadily drawn from the credit in a period usually lasting anywhere from 5 to 25 years. Borrowers are not required to make immediate payments on the drawn funds, only that they make a predetermined minimum payment.

Loans could be paid in increments during the draw period but all remaining balance must be paid before the loans maturity date. At the end of the draw period borrowers are expected to payback the full principal of the loan made. They are also required to pay a HELOC balloon payment and male payments based on a loan amortization schedule.

These types of loans offer borrowers a degree of flexibility in terms of loan repayments. Homeowners may choose a number of payment options which only require them to make pre agreed minimum interest payments.

HELOCS are similar to having a credit card line. Credits are drawn in a specific period against the maximum available home equity. Like credit cards, borrowers are required to make minimum monthly payments until credit are fully paid.

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Home Equity Line of Credit (HELOC) Basics