A Home Equity Line of Credit
A home equity line of credit is a revolving credit line, using
your home as collateral. A home is often the greatest asset most
people have and many homeowners make use of of a home equity
line of credit (HELOC) for major purposes such as home
improvements, education, medical bills and paying off other
debts.
There's also an excellent program available now that actually
shows you how to save thousands on your mortgage - and even
leverage a HELOC to potentially build wealth. You can learn more
about Make Your Home Make
You Rich at http://www.usecreditwell.com
Once approved for a home equity line of credit, you will be
assigned a particular credit limit based on the amount of equity
available in your home. Most lenders determine the credit limit
on a HELOC by establishing a percentage of your home's appraised
value and subtracting the amount of balance owed for your
existing current mortgage.
If your home has an appraised value of $350,000 and you owe
$270,000 then may be offered a HELOC of up to $80,000; $350,000
minus $270,000.
Additional factors will determine the value of your credit
limit. Lenders will consider your probable ability to pay by
analyzing your income, other debts, credit history and financial
responsibilities.
Almost all home equity line of credit plans are set for a fixed
period. During this period, such as five to ten years, you are
eligible to borrow money as long as it is within your credit
limit. It is very similar to using a credit card, with some
distinct advantages to you.
When the original period expires, you may renew the HELOC.
However, some plans do not offer renewals and once the period
has ended, you are not eligible to borrow any additional money.
Other lenders allow repayment for an agreed fixed period.
Usually, the draw period is set at five to ten years with a
repayment period of ten to fifteen years. However, each lender
could set its own draw and repayment periods. The most common
draw periods are nine years and six months. The most common
repayment period is for twenty years.
Once you have been approved for a home equity line of credit,
you have the benefit of borrowing up to your limit and utilizing
the equity in your home at any time. Most HELOC accounts come
with special checks and plans allow you use credit cards or
other methods to draw on the line of credit.
Some plans set limitations on the usage of the home equity line
of credit. Most plans allow you to get the minimum amount for
each transaction and maintain a minimum outstanding balance.
Some plans also oblige you to draw up your first advance as soon
as the line of credit is set up.
Like any other investment, there are costs to establish and
maintain a home equity line of credit. First, there could be
fees for property appraisals to determine the market value of
your home. Second, some lenders may require an application fee
that generally cannot be refunded if your application is denied.
If you shop around, however, you can usually obtain a HELOC with
no upfront fees - aside from the property appraisal.
In addition, you may be required to pay for a title search,
attorney fees, title and property insurance, additional taxes,
and preparation and filing of mortgages.
Once you have received your home equity line of credit, there
may be other fees during the entire plan period. These include
maintenance or membership fees and transaction fees for every
withdrawal.
Although there may be some upfront fees involved with
establishing your HELOC; your annual percentage rate will be
significantly lower than any other type of credit. Plus, you can
utilize the valuable equity built up in your home now - without
the need to refinance or sell your home.
The interest savings should allow you to offset all the costs of
maintaining and establishing the home equity line of credit.
Sometimes, the lenders waive some or even most of the costs for
closing the deal.