What is an Equity Line of Credit?
An equity line is a line of credit secured by your home. Equity line interest is usually tax deductible, unlike the interest on most consumer loans or credit cards. The payment on an equity line decreases proportionally whenever the outstanding balance decreases, and the unused portion can generally be tapped into again whenever the need arises. There are important differences between a fixed rate second mortgage and an equity line of credit: the fixed rate second mortgage payment does not change as the principal balance decreases, and once the fixed second mortgage has been paid down either partially or completely, a borrower cannot use that equity again, without either refinancing into a new first mortgage, a new fixed second mortgage, or an equity line of credit. Some lenders are now offering a blend of both an equity line of credit and a fixed rate loan. Contact one of our experienced loan agents today to learn more about this loan program.
An equity line of credit is a type of revolving credit account which is based on the equity someone has in an asset such as a home or business. This is a form of secured credit, since the equity in the asset and the asset itself act as security for the outstanding debt in the event that the borrower defaults. People can use equity lines of credit in a variety of ways, ranging from financing business operations to making improvements to a house, and many banks offer this type of credit line. When someone applies for an equity line of credit, the bank typically appraises the asset being used to back the line of credit, and it determines how much equity someone has in the asset. If outstanding debt on the asset is present, this debt will be subtracted from the total amount of credit available. After determining how much it feels comfortable lending, the bank will notify the borrower of the amount of his or her credit line. The borrower starts out with what is known as a “draw period,” ref
An equity line of credit works like a credit card that is secured by your home. The equity line of credit interest is tax deductible unlike interest payments on auto loans or credit cards, and therefore many times people use their equity line of credit to pay off the credit cards and automobiles. The other great thing is that the payment on the equity line of credit will decrease proportionally to the outstanding balance, while the unused portion can generally be drawn from whenever you have a need for it. The major difference between a second mortgage and an equity line of credit is that the second mortgage payment has static mortgage payments and cannot reuse that equity without a new loan, while the equity line of credit has dynamic payments that change with the loan amount and can continually act as a financial cushion to draw from when needed. 9.
A Home Equity Line of Credit or HELOC is a second mortgage or real estate loan secured against your home which is an arrangement that provides an equity credit line for you to borrow from whenever you need to up to an agreed limit. It is basically a line of credit secured by your home and is a very popular lending product in the US, but it is not available in the UK. Another popular US product not available here is the secured credit card that requires the use of a savings account to secure the credit. This information has merely been included to help you ignore these products when searching for mortgage information on the Internet.
