What is a Home Equity Line of Credit?
A home equity line is a form of revolving credit in which your home serves as collateral. Because the home is likely to be a consumer’s largest asset, many homeowners use their credit lines only for major items such as education, home improvements, or medical bills–not for day-to-day expenses. With a home equity line, you will be approved for a specific amount of credit your credit limitmeaning the maximum amount you can borrow at any one time while you have the plan. Many lenders set the credit limit on a home equity line by taking a percentage (say, 75 percent) of the appraised value of the home and subtracting the balance owed on the existing mortgage.
Home Equity Lines of Credit have some of the lowest interest rates and minimum payments. Application and documentation requirements are generally less demanding than traditional first or second mortgages. This makes it easier to qualify. Mortgage insurance is not required on any Home Equity Lines of Credit, thus reducing monthly payments. Interest payments may be tax deductible (consult your tax advisor). Home Equity Lines of Credit may reduce your monthly expenses if you use it to pay off existing debts.
A home equity line of credit (HELOC) is a revolving line of credit based on your equity -the part of your home that you actually own. As you make your monthly mortgage payments and put money toward the principal of the loan, you build up equity in your house. Equity also builds as your home appreciates. You can tap into this through a HELOC.
Also known as a HELOC, a home equity line of credit is a type of revolving credit for which your home is pledged as collateral.OnMouseOver Content: Collateral. Asset used as security to ensure loan repayment, i.e. a house or car. The interest rate and payments are variable.OnMouseOver Content: Variable. An interest rate that adjusts periodically according to the financial index it is based upon plus a margin. A variable rate must be based on a publicly available index such as the Prime Rate published in major daily newspapers or U.S. Treasury Bills. The interest rate may increase or decrease based on changes in the index. The term is defined by a draw periodOnMouseOver Content: Draw Period. For a HELOC, this is the length of time during which funds can be borrowed up to the available credit limit, usually by drawing on the line using checks or the Chase Equiline Platinum Visa card. and a repayment period.OnMouseOver Content: Repayment Period. On HELOC’s, the period of time after expira
A Home Equity Line of Credit allows you to periodically access an account of funds* via various means, using the equity in your current home or property as collateral. This loan is similar to a credit card account in that you are only charged interest on the outstanding balance, and there is usually a credit limit or maximum that you can draw against. For instance, you may have a credit limit of $100,000, but if you only withdraw $5,000 of that, you will only pay interest on that $5,000. The interest rate is usually tied to the Prime Rate with a margin, and may even be below Prime.
Related Questions
- Can consolidating debt through a new, refinanced mortgage, cash-out refinance, home equity loan or home equity line of credit (HELOC) help me cut my monthly expenses?
- What are the chances of interest rates being reduced to allow a refinance on an existing VA mortgage?
- What is a Home Equity Line of Credit?
