Home Equity Line of Credit
Published January 18, 2013
A home equity line of credit is different from a regular home equity loan or mortgage loan. With a home equity line of credit, the borrower is not given the entire sum up front, but instead has a line of credit, and can borrow only what they need. You pay back only what you use, plus interest. Thus, it may turn out to be cheaper than a regular loan. Regular mortgage loans require you to pay interest on the entire principal, whereas on a home equity line of credit you pay only for the amount you have used.
Another important difference is that you will be charged a variable rate based on an index, such as the prime rate, rather than a fixed interest rate. Be aware that not all lenders will figure the margin the same way (the margin is the gap between the prime rate and the interest rate you actually pay). Lenders do not tend to volunteer this information so you need to ask them about it before you take out the loan.
How It Works
A home equity line of credit is another form of loan that is secured by collateral and in this case it is your home. This means that if you do not repay the loan the lender may foreclose on your home. For this reason, lenders typically expect you to maintain a certain amount of equity on your home before they are willing to provide a home equity line of credit.
There are many possible benefits of a home equity line of credit compared to mortgage loans. The primary benefit is if you need ready cash for a project, such as remodeling your house, this can be a way to get cash on better terms than you would get for an unsecured loan.
The cost of the home equity line of credit is spelled out in the terms of the loan. These terms will vary from lender to lender. Remember, a home equity line of credit is no different from other mortgage loans that are secured by placing your property as collateral.
Perform a thorough research on home equity line of credit when you have decided to take the loan. You should start the process as soon as possible to get the best terms. Even if you are not ready to commit to the home equity line of credit, verify the facts so that you know your options.
There are many companies and brokers who can help you figure out if a home equity line of credit is right for you. Local banks, nationalized banks and institutions specializing in local lending offer home equity line of credit. If you get a variety of quotes from different lenders, you can base your selection primarily on who can offer you the best terms for your mortgage loans. Chase and Wells Fargo are some companies that offer home equity line of credit, loans, and credit cards.
Last Updated: January 18, 2013